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Bluffing Beyond Poker (Johannes Horner, Nicolas Sahuguet)

Bluffing Beyond Poker (Johannes Horner, Nicolas Sahuguet)

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Published by: teiosanu on Mar 23, 2010
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Blu¢ng Beyond Poker
Johannes HörnerNorthwestern University
¤
Nicolas SahuguetUniversité Libre de Bruxelles
y
February 6, 2002
Abstract
This paper introduces a model for blu¢ng that is relevant when bets aresunk and only actions -not valuations- determine the winner. Predictions frompoker areinvalid insuch nonzero-sumgames.
Blu¢ng 
(respectively
Sandbagging 
)occurs when a weak (respectively strong) player seeks to deceive his opponentinto thinking that he is strong (respectively weak). A player with a moderatevaluation should blu¤ by making a high bet and dropping out if his blu¤ iscalled. Aplayer with a high valuation should vary his bets and should sometimessandbag by bidding low, to induce lower bets by his rival.
Designers who put chess-men on the dust jackets of books about strategy arepresumably thinking of the intellectual structure of the game, not its payo¤ structure;and one hopes that it is chess they do not understand, not war, in supposing that azero-sum parlor game catches the spirit of a non-zero-sum diplomatic phenomenon.” -Thomas Schelling
¤
Kellogg School of Management, Department of Managerial Economics and Decision Sciences, 2001Sheridan Road, Evanston, IL 60208, USA e-mail:
j-horner@kellogg.nwu.edu
y
ECARES, 50 Av. Fr. Roosevelt, CP114, 1040 - Brussels Belgium. Email:
Nicolas.Sahuguet@ulb.ac.be.
Web page:
http://www.ssc.upenn.edu/~nicolas2
 
1. Introduction
Deception and misdirection are common practice in human a¤airs. They are widelyused and generally expected in politics, business and even in sports. In each of theseactivities the resources anactor invests in a contest will depend on the way he perceiveshis opponent’s strength. Manipulating this perception can, therefore, have an impor-tant e¤ect on the outcome. As Rosen (1986) has put it, “There are private incentivesfor a contestant to invest in signals aimed at misleading opponents’ assessments. It isin the interest of a strong player to make rivals think his strength is greater than ittruly is, to induce a rival to put in less e¤ort. The same is true of a weak player in aweak …eld.During preliminary hearings in a legal battle, for instance, lawyers can usecon…dently presentedexpert reports to mislead the other side as to the strength of theirclient’s arguments, encouraging a favorable settlement and avoiding costly litigation.In political lobbying, heavy initial investment by one side can discourage others fromentering the contest at all.Despite its importance, the use of deceptive strategies has been largely neglectedby the economic literature, where formal analysis has largely relied on analogies withthe game of poker. Von Neumann and Morgenstern (1944), for example, demonstratedthat it is rational for poker players to manipulate their opponents’ beliefs: players withstrong hands have an interest in appearing weak, thereby inducing other players toraise the stakes. Conversely players with weak hands aim to create an appearance of strength, increasing the probability that their opponents will fold. Experienced playerscommonly use both strategies, known in the trade as “sandbagging” and “blu¢ng”.Although poker is undoubtedly a good source of intuitions about human a¤airs, weargue in this paper that the analogy
can also be
misleading. There are importantfeatures of the game of poker which many real-life contests do not share. First, pokerhas a particular payo¤ structure: all bets go into a pot which is taken by the winner.This means that poker is a zero-sum game: one player’s gain is the other’s loss. Asecond peculiarity of poker is the way the winner is decided. A game of poker ends2

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