10strt_sg (1)

10strt_sg (1) - Chapter 10: Strategic Thinking Chapter 10...

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Chapter 10: Strategic Thinking Chapter 10 Strategic Thinking CHAPTER SUMMARY In strategic situations, when the parties move simultaneously, there are several useful principles to follow: Avoid using dominated strategies, focus on Nash equilibrium strategies, and consider randomizing. When the parties move sequentially, a strategy should be worked out by looking forward to the final nodes and reasoning back to the initial node. Through conditional or unconditional strategic moves, it may be possible to influence the beliefs or actions of other parties. In some settings, the first mover has the advantage; in others, the first mover is at a disadvantage. Finally, it is important to consider whether the situation will be played just once or repeated. The range of possible strategies is wider in a repeated situation. In a zero-sum game, one party can become better off only if another is made worse off. In a positive-sum game, one party can become better off without another being made worse off. KEY CONCEPTS s t r a t e g y c o o p e t i t i o n g a m e t
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Chapter 10: Strategic Thinking 2. Explain how the concept of Nash equilibrium predicts the outcome of strategic situations where parties act simultaneously. 3. Apply the concept of Nash equilibrium to a cartel. 4. Appreciate the use of randomized strategies, and calculate the Nash equilibrium in randomized strategies. 5. Distinguish strategic situations of competition and coordination. 6. Analyze strategic situations where parties act sequentially by backward induction. 7. Appreciate the use of strategic moves to influence the beliefs or actions of other parties. 8. Explain why conditional strategic moves are more cost-effective than unconditional strategic moves. 9. Understand how repetition expands the space of strategies and set of equilibria. NOTES 1. Strategic thinking . (a) Strategy is a plan for action in a situation where parties actively consider the interactions with one another in making decisions. (b) Game theory is a set of ideas and principles that guides strategic thinking. (c) The ideas and principles of game theory provide an effective guide to strategic decision making in many situations. 2. Nash equilibrium – for strategic situations where various parties move simultaneously. (a)
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10strt_sg (1) - Chapter 10: Strategic Thinking Chapter 10...

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