Professional Documents
Culture Documents
for
Strategic Advantage
15.025
Alessandro Bonatti
Building a Language: Recap
• Dominated Strategy
– From my own perspective, can I switch to a single different
strategy, and improve my payoff irrespective of others’ behavior?
• Best response
– Given my own probabilistic assessment of others’ behavior,
what’s the strategy that yields the highest expected payoff?
• Nash equilibrium
– With hindsight (after the game), does either player regret
choosing her action, holding fixed what other players chose?
• Seems like a
Column Prisoners’ Dilemma
Split Steal
But wait…
Split (2, 2) (0, 4)
Row
• Is this the right game?
Steal (4, 0) (0, 0)
– payoff matrix
– (available actions)
• … premium for
Once the blanks are filled, let the game speak! winning (value of
future monopoly)
Then, you may revisit your assumptions
Prof. Alessandro Bonatti MIT Sloan 15.025 Spring 2015 5
Stag Hunt
(J.-J. Rousseau, 1754)
• No dominated strategies
– focal points
– tipping points
– evolutionary dynamics
– stable frequencies
• Miscoordination risk!
Row’s
expected
payoff 0
Leave
-30
0% 40% 100%
Fraction of (column) players who Take
Prof. Alessandro Bonatti MIT Sloan 15.025 Spring 2015 14
Evolution in “Grab the City”
0% 40% 100%
Row and Col players are drawn from the same population
Too many Take Leave gets higher payoff
Too many Leave Take gets higher payoff
Column
• The role of consumer
Blu-ray HD DVD coordination
1
Blu-ray
Consumer’s
expected payoff
0.5
HD DVD
0
0% 50% 100%
Fraction of Blu-ray adopters
Prof. Alessandro Bonatti MIT Sloan 15.025 Spring 2015 20
Evolution in Technology Adoption
0% 50% 100%
Row and Col players are drawn from the same population
A 50:50 split of the population is unstable – why?
What happened?
Role of large players (Sony, Warner, Walmart)
Prof. Alessandro Bonatti MIT Sloan 15.025 Spring 2015 21
Takeaways: How to anticipate the
behavior of others
• Rationality: they will never play a dominated strategy
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