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The Art of Strategy

The Art of Strategy

Avinash K. Dixit, Barry J. Nalebuff
2008
T2 512 pages · about 8h 32m to read Open Librarygoodreads

Summary

This is Dixit and Nalebuff's updated and reorganised version of Thinking Strategically, covering the same material with new examples and additional topics. It presents game theory for readers without mathematics.

The content covers backward induction in sequential games, dominant strategies and equilibrium in simultaneous games, the prisoner's dilemma and the mechanisms that sustain cooperation, commitment and credibility with the full catalogue of devices that make a threat or promise believable, mixed strategies and the value of unpredictability, brinkmanship, and information problems including signalling and screening.

The additions relative to the 1991 book include more material on auctions, on incentive design and mechanism design, on voting rules and their manipulation, and on bargaining. The examples are updated with material from business negotiations, sports, television game shows and political contests. The chapter on how to use a game show format to illustrate strategic reasoning is genuinely instructive.

The book works as either a first introduction or as a refresher, and it is more accessible than most formal treatments. Its limitations are the same as its predecessor's: it teaches recognition of strategic structures rather than the ability to model a real situation, and the confidence with which game theoretic reasoning is applied to business and political situations exceeds what its predictive record supports. Readers who have read Thinking Strategically will find substantial overlap and should treat this as a replacement rather than a companion.

Key takeaways 7

  1. Sequential decisions should be solved by reasoning backward from the final outcome to the present choice.
  2. A threat or promise only changes the other party's behaviour if they believe you would carry it out, which makes credibility the entire content of a commitment.
  3. Deliberately removing your own options can strengthen your position, because a party that cannot back down receives the concession.
  4. Unpredictability is optimal in competitive situations where any pattern would be exploited, which is what mixed strategies formalise.
  5. Cooperation in repeated interactions is sustained by the expectation of future encounters, and a known final round destroys it from the end backward.
  6. Signalling works only when the signal is more costly for those who lack the quality being signalled, which is why cheap claims convey nothing.
  7. Auction and voting rules determine outcomes as much as the participants' preferences do, which makes rule design a strategic act in itself.

Who should read it

Operators and negotiators wanting practical strategic reasoning without mathematics, as a replacement for rather than companion to Thinking Strategically.

Similar books 6

Chosen by shared topics, the entries that hold them, and the people who recommended both.

Thinking StrategicallyThinking Strategically
T1 Thinking Strategically
Avinash K. Dixit, Barry J. Nalebuff · 1991
Open LibraryGoodreads

Game theory without maths: look forward, reason back, and make threats credible.

Prisoner's DilemmaPrisoner's Dilemma
T2 Prisoner's Dilemma
William Poundstone · 1992
Open LibraryGoodreads

Von Neumann, game theory and the prisoner's dilemma in nuclear strategy.

Theory of Games and Economic BehaviorTheory of Games and Economic Behavior
T1 Theory of Games and Economic Behavior
John von Neumann, Oskar Morgenstern · 1944
Open LibraryGoodreads

The founding of game theory: expected utility and strategy among interacting players.

The Strategy of ConflictThe Strategy of Conflict
T1 The Strategy of Conflict
Thomas C. Schelling · 1960
Open LibraryGoodreads

Conflict as bargaining: commitment, credible threats and focal points.

Recommended by: Naval Ravikant

Rational DecisionsRational Decisions
T4 Rational Decisions
Ken Binmore · 2008
Open LibraryGoodreads

Binmore on when Bayesian decision theory applies and when it does not

Recommended by: Nassim Nicholas Taleb

The Evolution of CooperationThe Evolution of Cooperation
T1 The Evolution of Cooperation
Robert Axelrod · 1984
Open LibraryGoodreads

Computer tournaments of the prisoner's dilemma show why tit-for-tat wins.

Recommended by: Patrick Collison, Naval Ravikant

Where it sits in the reference 4

Forecasting and Decision Making Under Uncertainty
Investment philosophy
Game Theory and Nash Equilibrium
Mental models
Prisoner's Dilemma
Mental models
Economic theory, firms and competition
Economics

Topics

Decision MakingEconomicsMathematics and StatisticsGames, gambling and quantitative finance