This is a course in game theory and its application to management, including business strategy. It offers an introduction to a selection of the methods and results of modern game theory. Emphasis is placed on the practical applications of these tools.
The audience for this course is anyone interested in the fundamental principles that are used in the disciplined and therefore necessarily abstract analysis of general strategic situations that cookie-cutter solutions and popular heuristics cannot cover. In particular, those interested in general management or consulting may enjoy the course.
12 sessions twice a week over March/April 2023
People’s outcomes are affected by their own decisions, and often by the decisions of others. Such situations are known as “games” and game-playing is serious business. Managers frequently play games within their firm (with other divisions and subordinates) as well as outside the firm (with competitors, customers, regulators, and even capital markets.) Governments play games with each other and their citizens. Everyone plays games!
The goal of this course is to enhance your ability to think strategically in complex, interactive environments. The insights gained in this course will help you to forecast and understand the actions of your rivals and to formulate good strategic responses. Further, game theory can provide lessons for the design of environments in which others operate (such as online platforms or auction and procurement settings).
The central theme is Understanding the Game. This is a far from trivial goal, and, as we shall see, it is much more common to fail from a lack of understanding the situation than from correctly-identifying the situation and analyzing it incorrectly.
In order to understand the game that we’re analyzing (as well as to practice the analysis), we provide a taxonomy of games and highlight some important classes of strategic interactions. In effect, we will build a library of games that we can call on: We will distinguish matrix and extensive form games, classify 2 by 2 games, and discuss several other important games, including classic “market” games and auctions.
We use these structures to explore themes for acquiring advantage in games.
- Identifying Structures: Being able to identify the key elements of the situation is critical for some strategic thinking to take shape.
- Selecting strategic moves: Changing the game being played to your advantage through credible commitments, threats, and promises.
- Exploiting hidden information: When to reveal information or not, and how to handle uncertainty about others’ information.
- Recognizing the limits of rationality: How to play when others may not be fully rational, and when others may be uncertain about your rationality.
Evaluation and Grade Distribution
The evaluation will be based on individual and group assignments, and in-class exercises. There is no exam in this course.
There is no text for this course, the slides, readings and classes should be self-contained and do not follow any book precisely.
For those who would like additional guidance, I recommend Games of Strategy. Avinash Dixit, Susan Skeath and David McAdams, 5th Edition. Earlier editions are just fine. (In the fourth editions, McAdams was not an author and Reiley was. In previous editions, it was just Dixit and Skeath – any of these are fine). There are several other excellent books that are relevant including, perhaps cheaper, textbook treatments such as Steve Tadelis’s Game Theory, and more business-oriented books such as Adam Brandenburger and Barry Nalebuff’s Coopetition and Avinash Dixit and Barry Nalebuff’s Art of Strategy. For a more literary-oriented analysis, Michael Chwe’s Jane Austen: Game Theorist lives up to its title.