1. Strategic Thinking What is Strategic Thinking Game Theory
Applications to Business
Applications to Life
This slideshow was written by Ken Chapman, but is substantially based on concepts from Thinking Strategically by Avinash K. Dixit and Barry J. Nalebuff, W.W. Norton 1991.

2. Survivor: Picking Sticks
Rules:
12 Sticks
During a player’s turn each person can pick 1-3 sticks.
Last person to move wins
Question: Is there a winning strategy?
Solution Strategy: Look ahead and reason back
This slideshow was written by Ken Chapman, but is substantially based on concepts from Thinking Strategically by Avinash K. Dixit and Barry J. Nalebuff, W.W. Norton 1991.

3. Modified Picking Sticks Game
Rules:
14 Sticks
During a player’s turn each person can pick 1-3 sticks.
Last person to move wins
14 13
This slideshow was written by Ken Chapman, but is substantially based on concepts from Thinking Strategically by Avinash K. Dixit and Barry J. Nalebuff, W.W. Norton 1991.

4. The Cambridge May Ball Casino Night Roulette Play Money
Winner gets ticket to the ball
In the final round Barry has $700, and Eva $300
This slideshow was written by Ken Chapman, but is substantially based on concepts from Thinking Strategically by Avinash K. Dixit and Barry J. Nalebuff, W.W. Norton 1991.

5. The Cambridge May Ball Roulette What should each person do?
Numbers 0-36
0 is green
1-36 odd numbers are Red, even are black
Betting $1 on Red wins with prob 18/37 and pays $2
Betting $1 on a multiple of 3 wins with probability 12/37 and pays $3.
What should each person do?
This slideshow was written by Ken Chapman, but is substantially based on concepts from Thinking Strategically by Avinash K. Dixit and Barry J. Nalebuff, W.W. Norton 1991.

6. Forecasting Stock Performance
Bob is a veteran predictor of stocks. His predictions appear on a popular Web-Site Each Monday Morning.
Jim is unknown
If his stocks perform better than Bob’s he may attract attention
If his stocks perform the same or worse than Bob’s he remains unknown.
When should Bob post his picks on his web-site? How should he make his choices?
This slideshow was written by Ken Chapman, but is substantially based on concepts from Thinking Strategically by Avinash K. Dixit and Barry J. Nalebuff, W.W. Norton 1991.

7. America’s Cup A two boat sailing race
The Australian boat starts out behind
This slideshow was written by Ken Chapman, but is substantially based on concepts from Thinking Strategically by Avinash K. Dixit and Barry J. Nalebuff, W.W. Norton 1991.

8. It’s your move Charlie Brown
Lucy: “I’ll hold the ball, you come running up and kick it Charlie Brown”
Charlie Brown “This year I’m gonna kick the ball out of the universe.”
This slideshow was written by Ken Chapman, but is substantially based on concepts from Thinking Strategically by Avinash K. Dixit and Barry J. Nalebuff, W.W. Norton 1991.

9. New Cleaners & Fast Cleaners
Vacuum Cleaners
Existing company Fast Cleaner’s Vacuums
Potential Entrant: New Cleaners
Post Entry choices for Fast Cleaners
Accommodate entry
Fight a price war
This slideshow was written by Ken Chapman, but is substantially based on concepts from Thinking Strategically by Avinash K. Dixit and Barry J. Nalebuff, W.W. Norton 1991.

10. New Cleaners & Fast Cleaners
Accommodate
$100,000 to New Cleaners
Fast Cleaners
Enter
Price War
$-200,000 to New Cleaners
Newcleaners
$0 to New Cleaners
Keep Out
This slideshow was written by Ken Chapman, but is substantially based on concepts from Thinking Strategically by Avinash K. Dixit and Barry J. Nalebuff, W.W. Norton 1991.

11. New Cleaners & Fast Cleaners
Accommodate
$100,000 to New Cleaners
$100,000 to Fast Cleaners
Fast Cleaners
Enter
Price War
$-200,000 to New Cleaners
-$100,000 to Fast Cleaners
Newcleaners
$0 to New Cleaners
Keep Out
This slideshow was written by Ken Chapman, but is substantially based on concepts from Thinking Strategically by Avinash K. Dixit and Barry J. Nalebuff, W.W. Norton 1991.

12. Bargaining: Ice-Cream Pie
Take-it-or-leave-it offers
The pie is melting
This slideshow was written by Ken Chapman, but is substantially based on concepts from Thinking Strategically by Avinash K. Dixit and Barry J. Nalebuff, W.W. Norton 1991.

13. Politics and the High Road
Obama Wins
McCain
Low Road
McCain has
a chance
High Road
Obama
McCain has
a chance
High Road
Obama has incentive to keep the decision a secret. The general principle is that for the look ahead and reason back solution to work, the second player must be able to observe the first.
Low Road
McCain
Low Road
Obama Wins
This slideshow was written by Ken Chapman, but is substantially based on concepts from Thinking Strategically by Avinash K. Dixit and Barry J. Nalebuff, W.W. Norton 1991.

14. Dominant Strategies Professor Jones choosing the right grail
Baseball: 2-outs, 2-strikes, runner on first
Terminology
Dominant Strategy
Dominated Strategy
This slideshow was written by Ken Chapman, but is substantially based on concepts from Thinking Strategically by Avinash K. Dixit and Barry J. Nalebuff, W.W. Norton 1991.

15. Time and Newsweek Newsweek’s Choices AIDS Budget Time’s Choices
35* / 35**
70* / 30**
30* / 70**
15* / 15**
Illustrates a dominant strategy equilibrium
*Magazine sales for Time;
** Magazine sales for Newseek
This slideshow was written by Ken Chapman, but is substantially based on concepts from Thinking Strategically by Avinash K. Dixit and Barry J. Nalebuff, W.W. Norton 1991.

16. A different situation Newsweek’s Choices AIDS Budget Time’s Choices
42* / 28**
70* / 30**
30* / 70**
18* / 12**
If your opponent has a dominant strategy…assume they will use it
This slideshow was written by Ken Chapman, but is substantially based on concepts from Thinking Strategically by Avinash K. Dixit and Barry J. Nalebuff, W.W. Norton 1991.

17. Football 3* 7* 15* 9* 8* 10* Defense’s Strategies Counter Run
Counter Pass
Blitz
Offense’s Strategies
Run 3* 7*
15*
Pass 9* 8*
10*
Eliminate any dominated strategies from consideration, the re-examine and see if there are more.
* Offense’s expected yardage gain
This slideshow was written by Ken Chapman, but is substantially based on concepts from Thinking Strategically by Avinash K. Dixit and Barry J. Nalebuff, W.W. Norton 1991.

18. Missile warfare C Iraqi Ship F B E A I H D American Ship G
Iraqi ship is about to fire a missile at the American ship
The American ship has missile defense. The anti-missile has only fuel for one minute
Missile goes in straight line or turns every 20 seconds H D
American
Ship G
This slideshow was written by Ken Chapman, but is substantially based on concepts from Thinking Strategically by Avinash K. Dixit and Barry J. Nalebuff, W.W. Norton 1991.

19. Table of Hits and Misses
Iraqi Strategy A M E R I C N
1-IFCB
2-IFEB
3-IFED
4-IFEH
5-IHGD
6-IHED
7-IHEB
8-IHEF
1-ABCF H O
2-ABEF
3-ABEH
4-ABED
5-ADGH
6-ADEH
7-ADEF
8-ADEB
For American’s ….A2 is dominated by A4; A4 also dominates A3, A6 and A7
A1 is dominated by A8
This slideshow was written by Ken Chapman, but is substantially based on concepts from Thinking Strategically by Avinash K. Dixit and Barry J. Nalebuff, W.W. Norton 1991.

20. Dominated Strategies Iraqi Strategy A M E R I C N H O 1-ABCF 2-ABEF
1-IFCB
2-IFEB
3-IFED
4-IFEH
5-IHGD
6-IHED
7-IHEB
8-IHEF
1-ABCF H O
2-ABEF
3-ABEH
4-ABED
5-ADGH
6-ADEH
7-ADEF
8-ADEB
This slideshow was written by Ken Chapman, but is substantially based on concepts from Thinking Strategically by Avinash K. Dixit and Barry J. Nalebuff, W.W. Norton 1991.

21. Reduced Table of Hits and Misses
Iraqi Strategies
American
Strategies
IFCB
IHGD
ABED O H
ADEB
No dominated strategies left…no dominant strategies. But there may be an equilibrium.
This slideshow was written by Ken Chapman, but is substantially based on concepts from Thinking Strategically by Avinash K. Dixit and Barry J. Nalebuff, W.W. Norton 1991.

22. Nash Equilibrium Definition Feast: Too many equilibria Famine
Standards: Driving on the right side of the road.
Phone connection breaks off: Who calls back
Famine
Re-examine the Missile game
Mixed Strategies
This slideshow was written by Ken Chapman, but is substantially based on concepts from Thinking Strategically by Avinash K. Dixit and Barry J. Nalebuff, W.W. Norton 1991.

23. Summary of Concepts Sequential Games Simultaneous Move Games
First Mover Advantage
Second Mover Advantage
Solve the game backwards
Simultaneous Move Games
Look for Dominant Strategies
If there are no Dominant Strategies, eliminate Dominated Strategies, and check for dominant strategies in the simplified game.
This slideshow was written by Ken Chapman, but is substantially based on concepts from Thinking Strategically by Avinash K. Dixit and Barry J. Nalebuff, W.W. Norton 1991.

24. Summary Continued… More on Simultaneous move games
If all else fails use Nash Equilibrium
Each player selects a strategy that maximizes his payoff given the strategy selected by the other player.
Characteristics of Nash Equilibrium
Sometimes there is more than one
Sometimes there is no Nash Equilibrium in pure strategies. There is always a Nash Equilibrium in mixed strategies
This slideshow was written by Ken Chapman, but is substantially based on concepts from Thinking Strategically by Avinash K. Dixit and Barry J. Nalebuff, W.W. Norton 1991.

25. Mary and Bob are playing the game described in the table below
Mary and Bob are playing the game described in the table below. Bob picks the columns (either A, B, C, D or E while Mary picks the rows (either 1, or 2). Use concepts from class to pick the likely outcome of this game if their choices are made non-cooperatively and simultaneously.

26. Statement 1: Non-cooperative Nash equilibrium is the economists favorite solution to use in games because you can always find a single predicted outcome to any situation.
Statement 2: When we say that a player has a “Dominant” strategy, we mean that no matter what his/her opponent does, that player will always make the same choice.
a. Statement 1 is true, but 2 is false
b. Statement 2 is true, but 1 is false
Both are true
Both are false

27. Alice and Bob are playing the game described in the table below
Alice and Bob are playing the game described in the table below. Bob picks the rows (either A, B, or C, while Alice picks the columns (either D, E, or F). Use concepts from class to pick the likely outcome of this game if their choices are made non-cooperatively and simultaneously.
a. Bob will pick B and Alice D
b. Bob will pick C, and Alice F.
c. Bob will pick C and Alice E.
d. Bob will pick A and Alice D.
e. None of the above are the solution to this problem

28. Bob and Alice are going to play the non-cooperative sequential game described below. Bob picks first choosing A or B. Alice picks second, picking C or D. After Alice picks, Bob gets to pick once again, choosing either E or F. Payoffs marked with * are for Bob and ** for Alice. What is the likely outcome of this game according to concepts discussed in class?

29. Statement 1: “In a two-player, simultaneous-choice game if strategy A is better for every possible choice of your opponent than strategy B, then we say that you have a dominant strategy.”
Statement 2: “If there are no dominant strategies, and no dominated strategies in a game, then there will always be a single Nash equilibrium outcome to help predict what will happen.”
a. Statement 1 is true, but 2 is false
b. Statement 2 is true, but 1 is false
c. Both statements are correct.
d. Neither statement is correct

30. Statement 1: “In the ‘casino night’ story from Dixit and Nalebuff by the last spin of the roulette wheel in the evening Barry had $700 and Eva had $300. Sine the money amounts were significant only if you had the most at the end of the evening, Barry’s best strategy was to wait for Eva to place her bet, and bet the same amount on the same event.”
Statement 2: “In the ‘casino night’ story mentioned above, Eva’s best choice was to put her $300 on a multiple of 3 so that she would receive $900 if she won. Realizing this she should place her bet immediately and hope Barry didn’t know how to respond.”
a. Statement 1 is true, but 2 is false.
b. Statement 2 is true, but 1 is false..
c. Both statements are correct.
d. Both statements are false.

31. Which of the following statements best describe the situation in the simultaneous choice game depicted above?
a. Strategy F is a dominated strategy for Edna, while strategy A is a dominated strategy for Bob.
b. Strategy E is a dominated strategy for Edna, while strategy A is dominated strategy for Bob.
c. There are no dominated strategies in this game.
d. Strategy F is a dominated strategy for Edna, while strategy c is a dominated strategy for Bob.