Summary: The Art of Strategy

Review and Analysis of Dixit and Nalebuff's Book

BusinessNews Publishing

• Editorial: Must Read Summaries
• Año: 2016
• ISBN:
  9782511021569
• Categoría: Mathematics
• Categoría: Game Theory

The must-read summary of Avinash Dixit and Barry Nalebuff's book: `The Art of Strategy: A Game Theorist's Guide to Success in Business and in Life`.

This complete summary of the ideas from Avinash Dixit and Barry Nalebuff's book `The Art of Strategy` shows how game theory can be relevant and applicable to contexts other than academia, as it aids strategic thinking. In their book, the authors explain the basic rules of game theory, breaking down each section into easy-to-understand segments with real-life examples. This summary is a clear guide to using game theory in all areas of your life to help you make strategic decisions.

Added-value of this summary:
• Save time
• Understand key concepts
• Expand your knowledge

To learn more, read `The Art of Strategy` and become an expert at using game theory to create the best strategies.

Summary of The Art Of Strategy (Avinash Dixit and Barry Nalebuff)

1. What is it?

To understand the science of game theory, first become familiar with its underlying definitions and concepts. Once you understand the lay of the land, you can then start using game theory in the strategic decisions you need to undertake.

The terminology used in game theory is as follows:

• A “game” is a situation of strategic interdependence – that is, the outcome of your own choices are determined at least in part by the choices other people make acting purposefully.
• “Moves” are the choices the decision makers make.
• “Players” are all the decision makers.
• “Zero-sum games” are those situations where one person’s gains can only come about as the result of another person’s losses. In business, pure zero-sum situations are reasonably rare. More frequently, there are zones of common benefit (where all the players derive some benefits) and zones of mutual conflict (where any strategy is equally harmful to all the parties active in the field).
• “Rivals” are all the other players in any game you are participating in.
• Moves in any game may be “sequential” or “simultaneous”. In a game involving sequential moves, you will have a linear chain of thinking: If I do this, then I anticipate my rival would do that and I would then be forced to attempt this and so on. In practice, most games tend to involve a combination of sequential moves and simultaneous moves mixed together.
• When analyzing a sequential game, it’s usually helpful to draw a “game tree” – kind of like a road map which describes options at each point where a decision must be made. Because the options become progressively more numerous as the game goes on, the table tends to look something like a tree on its side.
  
• When analyzing a simultaneous game, you usually get the best possible results if you put together a table which shows what the outcomes will be to all possible combinations of choices.

“Work, even social life, is a constant stream of decisions. What career to follow, how to manage a business, whom to marry, how to bring up children, and whether to run for president are just some examples of fateful decisions. The common element in these situations is that you do not act in a vacuum. Instead, you are surrounded by active decision makers whose choices interact with yours. This interaction has an important effect on your thinking and actions. Game theory aims to help you think strategically, and then translate these thoughts into action”.

– Avinash Dixit and Barry Nalebuff

“While game theory is a relatively young science – just over seventy years old – it has already provided many useful insights for practical strategists. But, like all sciences, it has become shrouded in jargon and mathematics. These are essential research tools, but they prevent all but the specialists from understanding the basic ideas. Our main motive was the belief that game theory is too interesting and too important to leave to the academic journals. The insights prove useful in many endeavors – business, politics, sports, and everyday social interactions. We are delighted to find our view becoming mainstream. Game theory courses are some of the most popular electives at Princeton and Yale, and most other schools where they are offered. Game theory permeates strategy courses in MBA programs, and a Google search for game theory produces more than 6 million pages. You’ll find game theory in newspaper stories, op-eds, and public policy debates.”

– Avinash Dixit and Barry Nalebuff

“Game theory was pioneered by John von Neumann. In the early years, the emphasis was on games of pure conflict (zero-sum games). Other games were considered in a cooperative form, that is, the participants were able to choose and implement their actions jointly. For most games played in reality, people choose actions separately but their effects on others are not ones of pure conflict. The breakthrough that allowed us to study general games combining conflict and cooperation is due to John Nash. John Harsanyi, who shared the 1994 Nobel Prize with Nash, showed that Nash equilibrium could be extended to games where players are unsure about the other player’s preferences. Another challenge in the application of Nash equilibrium is the potential for multiple solutions. The work of 2005 Nobel laureate Robert Aumann shows this challenge becomes even greater in repeated games. Almost anything can be a Nash equilibrium in a game that is repeated often enough. Fort...