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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 zerosum game, one party can become better off only if another is made
worse off. In a positivesum game, one party can become better off without
another being made worse off.
KEY CONCEPTS
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View Full DocumentChapter 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 costeffective 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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 Spring '11
 Michaelshaw

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