1. 7: Strategic Moves. In this section we shall learn
How to use commitments, threats and promises to change the game you are playing to your advantage
How to make your commitments, threats or promises credible so that your opponent will take them seriously
How to deny your opponent the opportunity to make commitments, threats or promises
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2. Strategic Moves
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3. Games People Play.

4. Games with Strategic Moves.
The Chicken Game again.
Two cars drive straight at each other at great speed, if the cars crash you are killed, the worst possible outcome. If your opponent swerves aside and you continue in a straight line you show him to be a chicken, you gain and he loses, but he loses less than being killed! If you both swerve you miss each other and there is no gain or loss on either side.
New Element: Before you get in the car you now have the option of committing to an action, straight or swerve. What do you do? And what are the crucial features of your commitment?
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5. Games with Strategic Moves.
The option to commit in the Chicken Game is an example of a strategic move.
A strategic move changes the game you are playing from a single-stage game to a two-stage game. In the first stage you make your strategic move in the second you play the original game.
Strategic moves come in three forms
Commitments.
Threats.
Promises
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6. Unconditional Strategic Moves.
Commitments.
A strategic move that is unconditional is refereed too as a commitment. For example in the chicken game modifying your vehicles steering so that it only goes straight is a commitment. But the commitment needs to have two properties
Observable – Your opponent should be able to observe your commitment or you can claim to have made it when you have not.
Irreversible – You cannot undo your commitment move or it’s as if you never made it.
Such commitments are Credible.
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7. Unconditional Strategic Moves.
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8. Conditional Strategic Moves.
A strategic move that is conditional involves specifying to your opponent how you will respond to each of her moves.
Threats.
“If you don’t clean your room you cannot borrow the car.”
Here we are trying to achieve deterrence.
Promises.
“If you clean you room I will let you borrow the car”
Here we are trying to achieve compellence.
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9. Credibility of Strategic Moves.
There are many threats and promises that might be made, but they will only achieve their objective if they are credible. That is the other player believes they will be carried out as stated.
Carrying out a threat or promise typically changes the payoffs enjoyed by the proposer.
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10. Credibility of Strategic Moves.
This raises two types of problems
If the proposer gains from carrying out a threat or promise it will be carried out anyway. Thus it has no incentive effects.
Example: Little Johnny is offered ice cream if he eats his peas, but will get ice cream anyway because the parents enjoy seeing his pleasure.
If the proposer loses too much from carrying out a threat or promise it will not be carried out. Again this has no incentive effects.
Example: Itchy loves Scratchy and will not shoot him whether he lets him borrow his bike or not.
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11. How to Make Strategic Moves Credible.
Typically credible threats need to be threats that hurt the proposer.
They are actions she does not want to undertake when the time comes.
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12. How to Make Strategic Moves Credible.
To make these strategic moves credible you need to undertake an action that make the threat your best option. This can be done in two ways.
Remove the alternatives preferable to your threat from your choice set.
Example: Cancel a social engagement to supervise a grounded child.
Change the payoff associated with your threat.
Example: Give a friend $50 to be returned to you only if you carry out your threat.
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13. Analysis of Strategic Moves
Consider the example of US-Japanese Trade Relations.
Each has the option of opening or closing their markets to the other’s goods giving the following payoffs.
Japan
Open
Closed US
4,3
3,4
2,1
1,2
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14. Analysis of Strategic Moves
US-Japanese Trade Relations.
Japan
Open
Closed US
4,3
3,4
2,1
1,2
We see that closed is a dominant strategy for Japan, and open is a dominant strategy for the US.
Suppose the US has a strategic move and can threaten to play the same move as Japan.
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15. Analysis of Strategic Moves
US-Japanese Trade Relations – with Strategic Move.
Japan
Open
Closed US
4,3
3,4
2,1
1,2 US
No Threat
Threat
JAPAN
Closed ( 1
,2)
Open ( 4
,3) ( ., J )
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16. Analysis of Strategic Moves
Notice that the real threat in this example is “if you play closed we will play closed.”
A successful threat does not have to be carried out.
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17. How to Seize the Strategic Move Advantage.
A strategic move essentially involves seizing the first mover advantage.
But both players may attempt to make strategic moves simultaneously.
This seems to lead to stalemate, the players are back to the original situation. In the chicken game playing straight or swerve or simultaneously promising to do so are the same things.
Recall strategic moves only work if they are observable and irreversible.
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18. How to Seize the Strategic Move Advantage.
To seize the strategic move advantage you want to communicate your move to the other player, but then shut down communications so that she does not have the same option.
Don’t take their phone calls and unplug your answering machine!!
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19. Strategic moves an Happy-Families example
In negotiating with an input supplier Happy-Families have access to a classic strategic move. They can, at a cost, qualify alternative suppliers. This changes the threat positions in the subsequent negotiations with the supplier to Happy-Families’ advantage. A B X a b S a' S'
Effect of
strategic
move
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20. Acquiring Credibility
Strategic moves only work if your opponent believes the threat or promise will be carried out. That is if they are credible.
Credibility can be obtained by
Reducing your Freedom of Action.
Changing your payoffs.
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21. Acquiring Credibility.
Reducing Your Freedom of Action.
Automatic fulfillment – doomsday device.
Delegation – give the authority to another agent who prefers to carry out the threat.
Burning Bridges – the elimination of European currencies for the Euro fixes exchange rates.
Cutting off communication – denies another player the opportunity to negotiate.
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22. Acquiring Credibility.
Changing Your Payoffs.
Reputation – in repeated games retaining your reputation has value.
Small Steps – you may not be willing to carry out a large punishment all at once but a sequence of small steps is sometimes possible.
Teamwork – failure to honor a promise is punished by others who also suffer the consequences.
Irrationality – do as I say or I will shoot myself.
Contracts – legally commit to pay a large sum to charity if you do not carry out your threat.
Brinkmanship – Reduce an incredibly large threat by reducing the probability it will happen.
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23. Reputation?
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24. Countering Strategic Moves.
Irrationality – try to persuade your opponent that giving in to her threat will damage you in of itself.
Cutting Off Communication – If you expect they will threaten you, don’t talk to them.
Leave escape routes open – Don’t let your opponent get into a position where they have to fight.
Undermine reputation incentives – state “I won’t tell others if you fail to punish me.”
Salami tactics – cheat a little at a time, they won’t ever find it in their interests to carry out the threat.
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