"Game theory. The Art of Strategic Thinking in Business and Life" Barry J.

Avinash Dixit, Susan Skeete and David Reilly Jr.

Strategy games. An accessible textbook on game theory

Scientific editor Alexander Minko

Published by permission of W.W. Norton & Company, Inc. and literary agency Andrew Nurnberg

All rights reserved. No part of this book may be reproduced in any form without the written permission of the copyright holders.

© W. W. Norton & Company, Inc., 2015, 2009, 2004, 1999

© Translation into Russian, publication in Russian, design. Mann, Ivanov and Ferber LLC, 2017

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In memory of my father, Kamalakar Ramachandra Dixit

Avinash Dixit

In memory of my father, James Edward Skeete

Susan Skeete

To my mother, Roni Reilly

David Reilly

Foreword by the publishing partner

Here is a logical continuation of the book “Game Theory” by Avinash Dixit and Barry Nalebuff. In the new book, we are again involved in the analysis of many situations, on the basis of which we learn to understand the types of different strategies and predict the behavior of game participants.

In Russia, game theory has become not just a fashionable topic, but also mandatory knowledge for people solving complex strategic problems. The demand for literature on this topic is growing, and here in front of you is one of the few worthy books in which the authors managed to clearly explain the concepts and techniques of strategic play.

An interesting point: strategy games are not limited to just mathematical analysis of the situation. One of the main conditions of the game is the presence of players, each of whom has their own desires, tasks and goals. And it is the combination of methods of psychology and mathematics that makes it possible to build the most successful game strategy.

Despite the fact that all people in one way or another encounter games in everyday life, there are those who need this knowledge in the first place. I'm talking about leaders. Their role is to achieve the goals of the department or organization, taking into account the many people involved in the process. Project management, negotiation, change implementation - each of these areas of business is a strategic game.

What does this look like in practice? Not long ago, Samolov Group consultants led a project to support negotiations for the head of a large construction company. Our client's task was to purchase a large plot of land for construction. It was difficult for him to negotiate with his partner on his own terms. Together with the customer, we analyzed the interests and capabilities of the opponent. After the collection, it was discovered that the partner was approaching the repayment period of a large loan. Our client proposed new terms of the transaction under which the opponent had the opportunity to repay this same loan. Thus, the contract was signed for the amount that our client expected. The example illustrates the importance of player analysis as it allows one to determine the most winning strategy.

The higher the level of a manager, the more important it is for him to develop strategic thinking and the ability to apply game theory methods in practice. In reality, Russian managers are accustomed to solving situations “here and now”, without thinking about long-term scenarios. Therefore, learning the skills of planning, setting goals, and developing strategies is quite difficult even for experienced managers. It is necessary to admit to yourself that if you do not develop these competencies and do not pay due attention to planning, it will be more difficult to achieve serious goals.

In the book “Strategic Games” the methodology is presented through cases. This format may be somewhat unusual for Russian readers. In Russia, training first involves a description of the methodology, and then its application. In the same book, cases are first given, and then an analysis and conclusion of the methodology is made from them. The text of the book may seem difficult to understand, but the information contained in it is of great value, so I recommend that the interested reader take the time to read and get intellectual pleasure from it.

Ivan Samolov,Commercial Director of Samolov Group

Preface

We wrote this textbook for teachers and first- or second-year college students to help them master the basics of game theory. It does not require prior knowledge in the fields in which this science is applied (such as economics, political science, evolutionary biology, etc.); School level mathematics is sufficient. We must say that the result obtained exceeded all our expectations. Today, many courses in this discipline are taught in places where they were unheard of 20 years ago, and some of them were developed under the influence of our textbook. And the emergence of competitors and imitators on the market is another convincing sign of success.

However, success is not a reason for complacency. In each subsequent edition of the textbook, we continued to improve the material presented in it, taking into account the comments and suggestions of teachers and students, as well as our own experience in using it.

The main innovations in the fourth edition are related to mixed strategies. In the third edition, we treated this issue in two chapters based on the differences between simple and complex topics. Easy topics included solving and interpreting mixed strategy equilibria in 2 × 2 games, and the main difficult topic was the general theory of mixing in games with more than two pure strategies, where some of them may remain unused in the equilibrium. However, we have found that few teachers address the second of these chapters. Therefore, we decided to combine simple topics and some basic concepts from more complex topics into one chapter on mixed strategies (Chapter 7). Some material not included in this chapter will be available as online appendices for readers wishing to explore advanced topics in greater depth.

We've improved and simplified the material on information in games (Chapter 8). In particular, they provided an expanded description and more examples of preliminary exchanges in order to clarify the relationship between the alignment of interests and the possibility of reliable communication. In addition, we analyzed examples of signaling and screening at the beginning rather than at the end of the chapter, as was the case in the third edition, to convince students of the importance of this topic and to set the stage for the drier theory presented in the following sections.

Games in some of the applications of game theory discussed in later chapters were simple enough to be analyzed without an extensive game tree or payoff table. But this weakened the connection between the previous chapters, which outlined the methodological principles of game theory, and examples of the practical application of these principles. Therefore, we now show more inference tools in the context of their practical use.

We have expanded and improved the set of exercises. They, as in the third edition, are divided into two groups in each chapter - with and without solutions - and in most cases are presented in parallel: for each exercise with a solution there is a corresponding exercise without a solution, but with minor changes, which allows students to practice further. Readers can access solutions to the first group of exercises at books.wwnorton.com/studyspace/disciplines/economics.aspx?DiscId=6. Solutions to the second group of exercises will be provided to teachers using this textbook in their work: they will need to contact the publisher to gain access to the site for teachers. In each group of exercises with and without solutions, there are two types of exercises. Some provide the opportunity to repeat and practice the methods being studied, in others we guide the student step by step through the process of creating a model for analyzing a particular issue or problem from the perspective of game theory (in our opinion, these exercises have the greatest educational value). Such experience, gained through the analysis of exercises with solutions and reinforced through corresponding exercises without solutions, contributes to the development of strategic thinking skills in students.

B O Most of the other chapters have also been updated, improved, systematized and simplified. The most significant changes were made to the chapters on topics such as the prisoners' dilemma (Chapter 10), collective action (Chapter 11), evolutionary games (Chapter 12), and voting (Chapter 15). We have excluded the last chapter of the third edition (Markets and Competition) because evidence shows that almost no one used it. If necessary, teachers can find it in the third edition of the textbook.

Barry J. Nalebuff, Avinash Dixit

Game theory. The Art of Strategic Thinking in Business and Life

Avinash K. Dixit, Barry J. Nalebuff

The Art of Strategy:

A Game Theorist's Guide to Success in Business and Life

Scientific editor Nadezhda Reshetnik

Published by permission of W.W. Norton & Company, Inc. and literary agency Andrew Nurnberg

Legal support for the publishing house is provided by the Vegas-Lex law firm.

All Rights Reserved. Authorized translation from the English language edition published by John Wiley & Sons Limited. Responsibility for the accuracy of the translation rests solely with MANN. IVANOV AND FERBER and is not the responsibility of John Wiley & Sons Limited. No part of this book may be reproduced in any form without the written permission of the original copyright holder, John Wiley & Sons Limited.

© Avinash K. Dixit and Barry J. Nalebuff, 2008

© Translation into Russian, publication in Russian, design. Mann, Ivanov and Ferber LLC, 2015

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Foreword by the publishing partner

AT BIG BOOK STORES I always want to buy a lot of books at once, especially those on my favorite topics: management, marketing and education. I would definitely buy this book because it was recommended to me by the publishing house Mann, Ivanov and Ferber, for which I am very grateful. Now, after reading it, I can confidently say that I will definitely read it again.

Game theory is a branch of mathematics that studies the choice of optimal strategies in conflict situations in which there is a struggle between participants. Each side pursues its own interests and seeks the most advantageous solution, possibly to the detriment of its rivals. The simplest examples of such games are chess, card games, and sports. All of them are conducted according to given rules that cannot be violated. But in real life, rivals can do anything to win: they threaten, manipulate, deceive - take, for example, the relationship between parents and a disobedient child.

At first glance, we can conclude that due to the human factor and simple chance, the outcome of the conflict is almost impossible to predict. But that's not true. Each of our choices is a choice of a dominant strategy (the most profitable, taking into account the immutability of the strategies of other players), which makes our behavior predictable in the eyes of those who are fluent in game theory.

For me, learning about game theory became intuitive. This happened when I started working with large clients: negotiations with them required more careful preparation. In small and quick transactions, it is important to know the product perfectly and understand the needs of the client. When we are talking about large sums, the client’s behavior strategy, his interests, alternatives and goals are of particular importance. Long negotiations and meetings really resembled a game in which I always strived for both sides to emerge victorious. The same games occur between a manager and a subordinate - for example, when it comes to changing wages or setting a difficult task. Therefore, I read this book with excitement, because everything in it that was incomprehensible to me turned out to be a long-thought-out model of behavior.

In my opinion, the authors’ special merit is that in the book they reduced mathematics to a minimum. Avinash Dixit and Barry Nalebuff have chosen common, easy-to-understand examples to show how games work in real life. They showed that game theory is interesting. Almost from the first pages, the authors enter into a game with the reader, literally guessing the course of his thoughts, and through dialogue they show how to come to the right decision.

The material in the book is significantly simplified compared to the language of mathematics. Despite this, the book cannot be classified as one that can be read in one evening. I think that an interested reader who picks it up will not regret the time spent.

Ivan Samolov, Marketing DirectorSamolov Group

To all our students from whom we learned a lot (especially Seth. – B.N. )

Preface

WE DIDN'T PLAN TO WRITE A NEW BOOK. We were only going to make the necessary changes and additions to our previous book, “Strategic Thinking.” But everything turned out differently.

One of the reasons why we decided to revise and correct the previous edition of the book can be explained by the example of the hero of Jorge Luis Borges - Pierre Menard (1), who decided to rewrite Cervantes' novel Don Quixote. Having made a lot of effort, Menard created a new version of the novel, repeating the original word for word. However, 300 years have passed since Don Quixote was published. Menard used the same words in his novel, but gave them a completely different meaning.

Alas, our original text is not equivalent to Don Quixote, so in the revised and revised edition we still had to change something. In reality it would O Most of the book contains completely new material. New applications, new concepts and new points of view have emerged. Since the publication of the first book, so many new things have appeared that we considered it necessary to give this publication a new name. On the other hand, although we use new words, the intent remains the same. We want to change the way you perceive the world around you and help you think strategically by introducing you to the concepts and logic of game theory.

Like Pierre Menard, we also have a new point of view on what is happening. When we wrote Strategic Thinking, we were younger; In addition, the idea of ​​self-centered competition was dominant in those days. Since then, we have come to fully understand the important role cooperation plays in strategic situations and why a good strategy must necessarily be an appropriate combination of competition and cooperation (one of us wrote a book on this topic: Competitive Cooperation in Business (2)) .

The preface to the first edition of the book began: “Strategic thinking is the ability to outperform an opponent, knowing that the opponent is also trying to outperform you.” Now we add to these words: it is also the ability to find ways to cooperate, even if others are guided only by their own interests and not by selflessness. This is the ability to convince others (and even yourself) of the need to do what you promise. This is the ability to interpret and disclose information. This is the ability to put yourself in the place of another person in order to predict his actions and influence them.

I would like to think that The Art of Strategy reflects this more mature and wiser point of view. But there is also continuity. Although we offer more real-life stories in this new edition, our goal remains the same: to help you develop your way of thinking in the strategic situations you will face. This is not a book to read while traveling on business, offering "seven steps to guaranteed strategic success." The situations you will encounter will be so varied that you will achieve greater results by knowing some general strategy principles and adapting them to the strategy games you play.

Title: Game Theory. The Art of Strategic Thinking in Business and Life
Writer: Barry J. Nalebuff, Avinash Dixit
Year: 2008
Publisher: Mann, Ivanov and Ferber (MYTH)
Genres: Personal growth, Foreign psychology, Foreign educational literature, Popular about business

About the book “Game Theory. The Art of Strategic Thinking in Business and Life" Barry J. Nalebuff, Avinash Dixit

Many people know that our life is a game. But are you familiar with the rules of this game, with some tricks that help you win and predict your opponent’s moves? Barry J. Nalebuff and Avinash Kalamakar Dixit shared the secrets of successful gaming activities that can be applied both at work and in everyday life.

Book “Game Theory. The Art of Strategic Thinking” is a real tutorial on how to survive in difficult modern life with all sorts of intricacies and pitfalls. The authors explain in accessible words the essence of modern society - everyone plays in it. And although life's games are distinguished by a greater branching of moves, their nature is the same as in simple children's games. Barry J. Nalebuff and Avinash Kalamakar Dixit give many examples from various spheres of life - show business, sports, politics, everyday life, family life, entrepreneurship, etc. - showing people's involvement in strategic games.

The main idea of ​​the book is that in order to play successfully, you need to think correctly and plan everything clearly. This is impossible without basic knowledge of game theory. You should also remember your school knowledge of algebra, learn the laws of logic and some economic fundamentals. In this fundamental work, everything has been analyzed very carefully, so it will not be possible to “swallow” the book superficially - each chapter needs to be thought through and systematized. However, despite the academic nature of the work, Barry J. Nalebuff and Avinash Kalamakar Dixit wrote it in an accessible language, following a clear logic of presentation of theoretical aspects and examples of them, so the material will be understandable even to people far from mathematical calculations. This work should be read, first of all, by those whose work is related to communication: negotiations, large sales, consulting on various types of services, etc.

The value of this tutorial is the presence of a small workshop on the last pages - there are several tasks aimed at training thinking. The publication concludes with an impressive list of references, which will be useful for anyone wishing to continue their study of game theory.

Read the work “Game Theory. The Art of Strategic Thinking” is pleasant not only from the point of view of educational material, but also for the purpose of entertainment - the game has even penetrated into the style of writing. The authors encourage the reader to think and search for the right options among all possible ones, and this is a necessary condition for a successful player.

On our literary website books2you.ru you can download the book “Game Theory” by Barry J. Nalebuff, Avinash Dixit. The Art of Strategic Thinking in Business and Life" for free in formats suitable for different devices - epub, fb2, txt, rtf. Do you like to read books and always keep up with new releases? We have a large selection of books of various genres: classics, modern fiction, psychological literature and children's publications. In addition, we offer interesting and educational articles for aspiring writers and all those who want to learn how to write beautifully. Each of our visitors will be able to find something useful and exciting for themselves.

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Description of the book: This book will definitely appeal to readers who like mathematical science. It will be useful both for those who are simply interested in it as a hobby, and for those who are planning to enroll in mathematics departments. The book is entertaining and captivating. It presents numerous theories as well as practical exercises. Readers will be able to learn something new every time and apply it in practice by solving a variety of mathematical exercises. With a book like this you will never be bored again. Numbers, formulas, theoretical knowledge - all this is collected here.

In the current times of active fight against piracy, most of the books in our library have only short fragments for review, including the book Strategic Games. An accessible textbook on game theory. Thanks to this, you can understand whether you like this book and whether you should purchase it in the future. Thus, you support the work of writer Avinash Dixit by legally purchasing the book if you liked its summary.