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Thinking Strategically Lee Ching Chyi The Chinese University of Hong Kong
Chris Childs: “When you get elbows to the head and face, you cannot let it go.  I will retaliate every time ” December 11, 1997 Rival guards  Michael Jordan  of Chicago and  Chris Childs  of the NY Knicks jostle.  Both players received technical fouls but Childs was ejected after he threw the ball into Jordan’s Chest Jordan: “He then threw the ball at me and that really irritated me.  Certainly I could have hit him back, it could have been one-, two- or a three-game suspension.  But my level head overruled everything ”
Charlie Brown & Lucy
Charlie Brown & Lucy
Bargaining, Game Theory, and Strategic Thinking ,[object Object],[object Object],[object Object],[object Object]
Types of Interaction ,[object Object],[object Object],[object Object],[object Object]
Sequential Move ,[object Object],[object Object],[object Object],[object Object],[object Object]
Game Tree: Charlie Brown & Lucy Charlie Lucy Accept Reject Pull Ball Away Let Charlie Kick
To Enter or Not to Enter? To Fight or Not to Fight? ,[object Object],[object Object]
Game Tree: Entry Deterrence Game Newcleaners Fastcleaners Enter Stay out Accommodate Fight Price War $100,000 to Newscleaners $100,000 to Fastcleaners - $200,000 to Newscleaners - $100,000 to Fastcleaners $0 to Newscleaners  $300,000 to Fastcleaners
Centipede Game ,[object Object],[object Object],[object Object],[object Object]
Game Tree: Centipede Game The first number is Player 1’s payoff and the second is Player 2’s payoff D A 1 D A D A D A D A D A D A D A D A D A 2 1 2 1 2 1 2 1 2 4 1 2 8 16 4 8 32 64 16 32 128 256 64 128 512 1024 256 512 2048 4096 1024
Split a Dollar Allan, Barbie, and Charles have $100 to split.  Allan gets to offer first, and offers shares  b  and  c  to Barbie and Charles, keeping  a  for himself ( a + b + c =  100).  If both accept, the game is over and the dollar is divided accordingly.  If either Barbie or Charles rejects the offer, however, they come back the next day and start again, this time Barbie making the offer to Allan and Charles, and if this is rejected, on the third day Charles gets to make the offer.  If this is rejected, they all get nothing.  What will happen?
Game Tree:  Split a Dollar A Offer  b, c Reject Accept ( a, b, c ) B Offer  a , c Reject Accept ( a, b, c ) C Offer  a,  b Reject Accept ( a, b, c ) (0, 0, 0)
Simultaneous Move ,[object Object]
Dominant Strategy ,[object Object],[object Object]
Prisoners’ Dilemma Game ,[object Object]
Payoff Table:  Prisoners’ Dilemma Game The first number is 1’s payoff and the second number is 2’s payoff -1, -1 -9, 0 Don’t Confess 0, -9 -6, -6 Confess Prisoner 1 Don’t Confess Confess Prisoner 2
To Invest or Not to Invest?  ,[object Object]
Payoff Table:  To Invest or Not To Invest? The first number is A’s payoff and the second number is B’s payoff 50%, 50% 25%, 70% No 70%, 25% 45%, 45% Invest Company A No Invest Company B
Indiana Jones and the Last Crusade ,[object Object]
Dominated Strategy ,[object Object],[object Object]
How would the players play this game? The first number is 1’s payoff and the second number is 2’s payoff 30, 0 0, 20 10, 30 Bottom 20, 30 10, 20 30, 25 Center Player 1 40, 20 10, 10 20, 0 Top Right Middle Left Player 2
How would you play this game? Player 1 -3, 72 -2, -57 -1, 88 1, -13 -22, 0 E -1, 17 1, -12 -1, 39 -3, 43 1, -33 D 0, 4 4, -1 0, 2 95, -1 54, 1 C 2, 3 33, 0 2, 5 2, 2 32, 1 B -3, 19 -2, 45 -2, 0 28, -1 63, -1 A e d c b a Player 2
An Armaments Game ,[object Object]
Payoff Table: Armaments Game 0.10 0.16 0.21 Ramming 0.17 0.22 0.35 Toss-bombs 0.16 0.14 0.18 Rockets Fighter Command 0.15 0.25 0.30 Guns No Fire,  High Speed Partial Fire, Med. Speed Full Fire, Low Speed Bomber Command
Gulf War ,[object Object],[object Object],[object Object]
Gulf War A B C D E F G H I
Payoff Table: Gulf War H: US missile hits Iraqi’s;  O: US missile misses the target H H H O H H H H ADEB H H H O H H H O ADEF H H H O H H H O ADEH O O O H H O O O ADGH H H H H H H H O ABED H H H O H H H O ABEH H H H O H H H O ABEF H O O O O O O H ABCF US Strategies IHEF IHEB IHED IHGD IFEH IFED IFEB IFCB Iraqi Strategies
Games without Dominated Strategies ,[object Object],[object Object],[object Object]
Nash Equilibrium ,[object Object],[object Object],[object Object],[object Object]
How would the players play this game? The first number is 1’s payoff and the second number is 2’s payoff 30, 0 0, 20 10, 30 Bottom 20, 20 10, 20 30, 25 Center Player 1 25, 20 10, 10 20, 0 Top Right Middle Left Player 2
The Battle of the Sexes ,[object Object],[object Object]
Payoff Table: The Battle of the Sexes The first number is husband’s payoff and the second number is wife’s payoff 3, 10 0, 0 Concert 0, 0 10, 3 Soccer Husband Concert Soccer Wife
Games with No Pure Strategy Equilibrium ,[object Object],[object Object],[object Object]
Stone-Scissors-Paper Game The first number is 1’s payoff and the second number is 2’s payoff 0, 0 -1, 1 1, -1 Paper 1, -1 0, 0 -1, 1 Scissors Player 1 -1, 1 1, -1 0, 0 Stone Paper Scissors Stone Player 2
Applications ,[object Object],[object Object],[object Object],[object Object],[object Object]
Picking Up Matches ,[object Object]
Picking Up Matches
The Three-way Duel ,[object Object],[object Object],[object Object],[object Object]
[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]
[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]
[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]
Sailors & Gold Coins ,[object Object],[object Object]
ZECK ,[object Object]
ZECK ,[object Object],[object Object]
ZECK
Player 1 will win.  If Player 2 has a winning strategy, that means that for  any  opening move of the first player, the second has a response that puts him in a winning position.  Imagine that the first player just takes the  upper right-hand dot .  Then, no matter how the second player responds, the board will be left in a configuration that the first player could have created in his first move.  If this is truly a winning position, the first player should have and could have opened the game this way.  There is nothing the second player can do to the first that the first cannot do unto him beforehand.
The Customs Officers and Smugglers ,[object Object],[object Object],[object Object],[object Object]
The Voting Game ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]
The fact that you have  power  does not necessarily make you a  powerful man.
Exercises ,[object Object],[object Object]
Ultimatum Game ,[object Object],[object Object],[object Object]
Repeated Prisoners’ Dilemma Game ,[object Object],[object Object]

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Thinking Strategically

  • 1. Thinking Strategically Lee Ching Chyi The Chinese University of Hong Kong
  • 2. Chris Childs: “When you get elbows to the head and face, you cannot let it go. I will retaliate every time ” December 11, 1997 Rival guards Michael Jordan of Chicago and Chris Childs of the NY Knicks jostle. Both players received technical fouls but Childs was ejected after he threw the ball into Jordan’s Chest Jordan: “He then threw the ball at me and that really irritated me. Certainly I could have hit him back, it could have been one-, two- or a three-game suspension. But my level head overruled everything ”
  • 5.
  • 6.
  • 7.
  • 8. Game Tree: Charlie Brown & Lucy Charlie Lucy Accept Reject Pull Ball Away Let Charlie Kick
  • 9.
  • 10. Game Tree: Entry Deterrence Game Newcleaners Fastcleaners Enter Stay out Accommodate Fight Price War $100,000 to Newscleaners $100,000 to Fastcleaners - $200,000 to Newscleaners - $100,000 to Fastcleaners $0 to Newscleaners $300,000 to Fastcleaners
  • 11.
  • 12. Game Tree: Centipede Game The first number is Player 1’s payoff and the second is Player 2’s payoff D A 1 D A D A D A D A D A D A D A D A D A 2 1 2 1 2 1 2 1 2 4 1 2 8 16 4 8 32 64 16 32 128 256 64 128 512 1024 256 512 2048 4096 1024
  • 13. Split a Dollar Allan, Barbie, and Charles have $100 to split. Allan gets to offer first, and offers shares b and c to Barbie and Charles, keeping a for himself ( a + b + c = 100). If both accept, the game is over and the dollar is divided accordingly. If either Barbie or Charles rejects the offer, however, they come back the next day and start again, this time Barbie making the offer to Allan and Charles, and if this is rejected, on the third day Charles gets to make the offer. If this is rejected, they all get nothing. What will happen?
  • 14. Game Tree: Split a Dollar A Offer b, c Reject Accept ( a, b, c ) B Offer a , c Reject Accept ( a, b, c ) C Offer a, b Reject Accept ( a, b, c ) (0, 0, 0)
  • 15.
  • 16.
  • 17.
  • 18. Payoff Table: Prisoners’ Dilemma Game The first number is 1’s payoff and the second number is 2’s payoff -1, -1 -9, 0 Don’t Confess 0, -9 -6, -6 Confess Prisoner 1 Don’t Confess Confess Prisoner 2
  • 19.
  • 20. Payoff Table: To Invest or Not To Invest? The first number is A’s payoff and the second number is B’s payoff 50%, 50% 25%, 70% No 70%, 25% 45%, 45% Invest Company A No Invest Company B
  • 21.
  • 22.
  • 23. How would the players play this game? The first number is 1’s payoff and the second number is 2’s payoff 30, 0 0, 20 10, 30 Bottom 20, 30 10, 20 30, 25 Center Player 1 40, 20 10, 10 20, 0 Top Right Middle Left Player 2
  • 24. How would you play this game? Player 1 -3, 72 -2, -57 -1, 88 1, -13 -22, 0 E -1, 17 1, -12 -1, 39 -3, 43 1, -33 D 0, 4 4, -1 0, 2 95, -1 54, 1 C 2, 3 33, 0 2, 5 2, 2 32, 1 B -3, 19 -2, 45 -2, 0 28, -1 63, -1 A e d c b a Player 2
  • 25.
  • 26. Payoff Table: Armaments Game 0.10 0.16 0.21 Ramming 0.17 0.22 0.35 Toss-bombs 0.16 0.14 0.18 Rockets Fighter Command 0.15 0.25 0.30 Guns No Fire, High Speed Partial Fire, Med. Speed Full Fire, Low Speed Bomber Command
  • 27.
  • 28. Gulf War A B C D E F G H I
  • 29. Payoff Table: Gulf War H: US missile hits Iraqi’s; O: US missile misses the target H H H O H H H H ADEB H H H O H H H O ADEF H H H O H H H O ADEH O O O H H O O O ADGH H H H H H H H O ABED H H H O H H H O ABEH H H H O H H H O ABEF H O O O O O O H ABCF US Strategies IHEF IHEB IHED IHGD IFEH IFED IFEB IFCB Iraqi Strategies
  • 30.
  • 31.
  • 32. How would the players play this game? The first number is 1’s payoff and the second number is 2’s payoff 30, 0 0, 20 10, 30 Bottom 20, 20 10, 20 30, 25 Center Player 1 25, 20 10, 10 20, 0 Top Right Middle Left Player 2
  • 33.
  • 34. Payoff Table: The Battle of the Sexes The first number is husband’s payoff and the second number is wife’s payoff 3, 10 0, 0 Concert 0, 0 10, 3 Soccer Husband Concert Soccer Wife
  • 35.
  • 36. Stone-Scissors-Paper Game The first number is 1’s payoff and the second number is 2’s payoff 0, 0 -1, 1 1, -1 Paper 1, -1 0, 0 -1, 1 Scissors Player 1 -1, 1 1, -1 0, 0 Stone Paper Scissors Stone Player 2
  • 37.
  • 38.
  • 40.
  • 41.
  • 42.
  • 43.
  • 44.
  • 45.
  • 46.
  • 47. ZECK
  • 48. Player 1 will win. If Player 2 has a winning strategy, that means that for any opening move of the first player, the second has a response that puts him in a winning position. Imagine that the first player just takes the upper right-hand dot . Then, no matter how the second player responds, the board will be left in a configuration that the first player could have created in his first move. If this is truly a winning position, the first player should have and could have opened the game this way. There is nothing the second player can do to the first that the first cannot do unto him beforehand.
  • 49.
  • 50.
  • 51. The fact that you have power does not necessarily make you a powerful man.
  • 52.
  • 53.
  • 54.