Systems Thinking for Business: Capitalize on Structures Hidden in Plain Sight by Rich Jolly

Author:Rich Jolly [Jolly, Rich]
Language: eng
Format: epub
Publisher: Systems Solutions Press
Published: 2015-01-20T00:00:00+00:00

Table 4. The Prisoner's Dilemma Payout in Standard Form

A payoff matrix is not the only way to represent a game. In some cases, expressing the game as a decision tree may be useful. Figure 50 shows the PD in a decision tree format. This may help visualize the analysis as it separates the two choices of the other player. One downside of this analysis is that it masks the requirement of simultaneous choice. In business, this type of graphic may be useful in bargaining and negotiation situations.

Figure 50. Decision Tree Format of Prisoner's Dilemma

Let's examine another game: the game of Chicken. The situation is as follows:

Two teenagers meet on a deserted street to determine who is the bravest. While all their friends watch from the side of the road, they drive to opposite ends of the street. One of their friends stands between them with a flag, and upon dropping the flag, they speed towards each other. The one who swerves is the chicken.

The payoff matrix for this game is shown in Table 5. The obvious problem is that if neither swerve, they crash their cars and they potentially have serious injuries.

If they both swerve, the payoffs are 0, 0. Neither one is a chicken but neither one is the hero. If the row player does not swerve, but the column player swerves, the row player's payout is high, four utiles, because he's the hero and the column player is the chicken. This game is symmetric so there is a -4 utiles payoff if the row player swerves and the column player does not since he will be the chicken[18]. Now, if they both don't swerve, there's a very large negative payoff. One can make that -10 or -1000; if they get killed in the crash then perhaps it's minus infinity. The first order of business is to check for a dominant strategy. From the row player's perspective, what would he do if he knew the column player was going to swerve? Looking at the left column, then he would not swerve since a payout of four utiles is more than zero. What if he knew the column player was not going to swerve? Then, clearly, he would swerve. So, there is no dominant strategy in this game. While there is no dominant strategy, game theory still has something to say about this game. What if the stipulation of no communication is relaxed and a player is allowed to make an irrevocable commitment? Say, for example, as they are speeding towards each other, one player removes their steering wheel and tosses it out the window. Now, that player simply cannot swerve, even if they wanted to. This irrevocable commitment will affect the outcome since the other player must now swerve. This type of strategy can have applicability in business. In a game of Chicken with your business competitor making an irrevocable commitment, such as a large capital investment in a manufacturing plant, could cause your competitor to swerve!

Download

Copyright Disclaimer:
This site does not store any files on its server. We only index and link to content provided by other sites. Please contact the content providers to delete copyright contents if any and email us, we'll remove relevant links or contents immediately.