B6838 Theory (Semester 1, Full course, No final
B6838 Game Theory Instructor Name: Title: Tel: Email : Adjunct Faculty David Cheung Game Theory (Semester 1, Full course, No final in-class exam) (65) 9022 4161 david. [email protected] edu. sg COURSE DESCRIPTION Game theory provides managers a structured and coherent approach to making better strategic decisions in an environment where conduct of competitors is often uncertain. This course uses cases to provide both the conceptual foundations of game theory and applications to business.
This course applies tools from microeconomics, industrial organization, organizational economics and game-theoretic analysis to competitive decision making. The emphasis is on the application of these concepts to business situations and strategy formulations. It also explores the identification and analysis of archetypal strategic situations frequently occurring in game theory situations (bargaining, conflicts and negotiation. ) The course is divided in two parts.
The first part focuses on business unit and corporate strategy.The second part focuses on understanding the foundational theory and application of Game Theory. It introduces tools to understand industry economics and the determinants of industry-wide matrix; it then studies the determinants of the individual firm’s strategy and profitability, focusing on positional, strategical, and organizational aspect. Game theory will be deployed to analyse competitive interactions when the number of players is small and the industry is being shaped by the interactions between these players.
This tool is used to analyze issues such as bargaining power, price competition, entry and exit decisions, standard setting and technological competition. HIGHLIGHTS and COURSE STRUCTURE: The course is heavily based on class participations, case discussions and knowledge sharing from industry experts. These guest speakers include, but not limited to, CEO of major financial institutions, strategists of global corporations, senior management of Asia-Pacific local players, and consultants of major firms.
Students will no doubt gain “insider” and “first” experience and discussions from these guest speakers. Most class sessions will consist of both “hands-on” experiences in structured strategic situations as well as lectures about the theory underlying these situations. Discussion relating experiences in structured setting to both theory and practice are an essential aspect of the course.LEARNING OBJECTIVES: By the end of this course, students will be able to: (a) Know the basic concepts of game theory, and how these concepts have been applied to business; (b) Evaluate and apply game-theoretic analysis, both formally and intuitively, to negotiation and bargaining situations; (c) Recognize and assess these concepts and situations in complicated negotiation settings; (d) Understand dynamic view of strategy and able to make decisions relating to pricing, signaling, capacity expansion, commitment, reputation, and entry deterrence; (e) Feel comfortable in the process of negotiation and; (f) Make vocational choices with various job industriesASSESSMENT METHODS Class Activity / Participation Group case-study Mid-term Group effort (10%) Mid-term Presentation (25%) Final case (case study – Take home) 40% 35% 25% —–100% GROUP PROJECT The goal of the group project is to make your study group debate and then take a clear position on an issue, usually the central question of the case, support your position, and note any issues or potential problems in a group.
It is not allowed to allocate a case to one student and then not have the group debate and decide on the content. All students in the group are responsible for what is in the write-up and could be asked to explain it. MIDTERM The format of the midterm write-up consists of 3 parts: 1. Summary / recommendation 2. Supporting argument 3.Issues and caveats Your presentation / write-up has to start with (1) a clear cut question in question form, such as “should MICROSOFT enter into FACEBOOK space? ” and (2) one sentence summary that states your basic position. The rest of the write-up essentially argues why that position is correct.
At the end, you should list concisely the 4 or 5 issues or potential problems with your recommendation. FINAL (take home) The final exam will be given 3 weeks to analyze a case study with no more than 1,000 words. There is no right or wrong answer, and the grading is based on how solutions are constructed through theories learned in class. ACADEMIC INTEGRITY 1. All students are responsible for the honest completion and representation of their work.
2.There will be zero tolerance for infractions and dishonesty. 3.
Harsh penalties will be applied if anyone is known to be dishonest. 4. If you believe there has been any dishonesty by anyone in class, please bring it to our attention. INSTRUCTIONAL METHODS 1. 2. 3.
4. 5. 6.
Interactive Class Seminars Role Plays Industry Speakers Case studies / Article discussion Group Project Final case write-up CLASS TIMES Saturday 9:30am to 12:45pm (2 Short Breaks of 10 minutes) BOOK REFERNECES Recommend: 1. The Art of Strategy: A Game Theorist’s Guide to success in business and life, WW Norton 2008, (Avinash K. Dixit and Barry J.
Nalebuff), ISBN 978-0-393-06243-4 2.The Blue Ocean Strategy: How to create uncontested market space and make competition irrelevant, Harvard Business School Publishing Corporation 2005, (W. Chan Kim and Renee Mauborgne), ISBN 1-59139-619-0 3. Switch: How to change things when change is hard, by Chip Heath, Dan Health, Broadway Books (division of Random House) 2010, ISBN 978-0-385-52875-7 4. The Lords of Strategy, Harvard Business School Publishing 2010, Walter Kiechel III, ISBN 978-1-59139-782-3 5. Drive: The surprising truth about what motivates us, by Daniel H. Pink, Riverhead st (hardcover) 1 edition, ISBN 978-1594488849 6.
Blink: The power of thinking without thinking, by Malcolm Gladwell, Little, Brown and Company (Jan 2005), ISBN 978-0316172325 Optional: 7.Game Theory: A Critical Introduction, Routledge 2004, (Shaun Hargreaves-Heap and Yanis Varoufakis), ISBN 0-415-25094-3 8. Good to Great: Why some companies make the leap…and others Don’t, HarperCollins Publishers 2001, (Jim Collins), ISBN 0-06-662099-6 9. Onward, by Howard Schultz, Rodale Inc 2011, ISBN 978-1-60529-288-5 10. How to win friends and influence people, by Dale Carnegie, Simon & Schuster (Hardcover November 2009), ISBN 978-1-4391-6734-2 Class schedule and weekly course topics: Week 1 Topic Introduction to Game Theory ? Course Outline and expectation ? An overview of Game Theory ? Why study it? ? What others say about it? ? Decision vs. Game Theory ? Application of Game Theory ?Personality defined – Know your personality and its implications ? Type of Games in class Class Discussion ? Why is Game Theory important? ? What do you expect from this class? ? What behavioral patterns can one benefit from various personalities? ? How do you benefit from knowing your personality? ? Do you agree that “You are self-interested and selfish (but so is everyone else)”? Readings See Recommended Reading List Guest Speaker / Case Studies Article discussion 2 Game Theory: Rules of the Game ? The landscape and Rules of the game ? Define the Strategic Environment and assumptions ? Sequential vs. Simultaneous Timing ? Strategies: Dominant and Pure vs.
Mixed ? Simultaneous Move Games ?The Payoff Matrix Class Discussion ? How do we identify, understand and master the “Rule of the Game”? ? Contrast the difference between sequential and simultaneous timing games. Sharing of practical examples ? Discuss Pure vs. Mixed strategies ? Relate the importance of Payoff Matrix See Recommended Reading List Guest Speaker (TBD) 3 The relevance of Prisoner’s Dilemma and Nash Equilibrium ? Mastering Dominant strategy: “I know what you don’t know…. ” ? Equilibrium defined and approach to identify it ? Breaking down the Prisoner’s Dilemma ? Methods to find Nash Equilibrium ? Best Response Analysis ? Nash Equilibrium (N. E.
) and its applicable in today’s world ?Introduction to Sequential Move Games See Recommended Reading List Article discussion Class Discussion ? What is your dominant strategy? How do you know that? ? Discussion of video “Dilbert’s mind” and Prisoner’s dilemma ? What did you learn from our class demonstration? If we were to do it again, will we get the same result? ? Discussion of video “A beautiful Mind” and Nash Equilibrium 4 Sequential Move Games and its relevance ? Importance of Game Tree ? Working through example: ? Airbus vs. Boeing ? Election results ? Market Access Analysis ? Example: Cereal ? Sequential Games with perfect information ? Constructing a sequential move game Class Discussion ?Share experience of incidents where Game Tree analysis would help you conquer the situation ? Did Boeing and Airbus have the right strategy? ? Which Cereal strategy are you? And will this changes your pattern going forward ? Discuss on ways to construct a sequential move game tree See Recommended Reading List Guest Speaker (TBD) 5 Formation of Mixed Strategy ? Define Mixed Strategy ? Putting it together (Simultaneous and Sequential games) ? Changing the Orders of Moves ? Working through Examples: ? Employee monitoring ? Probabilistic soccer ? Parking tickets ? Exploitable Interaction Class Discussion ? Compare and contrast Mixed strategies ? Would you rather be the First mover or Second mover? Why? What is the optimal method to changing the order of play to your advantage? ? Share your experience with (1) employee monitoring (2) parking tickets See Recommended Reading List Article Discussion 6 Mixed Strategy and Games ? Game Theory: Mixed Strategy games ? Mixed Strategy: First mover, Second mover advantages ? Going Beyond Prisoner Dilemma ? Interactions (Finite vs. Long-term) ? Trigger strategy Extremes: ? Tit-for-Tat ? Grim Trigger ? Other Strategies: ? Cooperation ? Deterrence ? Credibility Class Discussion ? Discuss and give examples of Mixed Strategy games ? From the game played in class: First mover or Second mover strategy dominates? What’s your strength? Tit-for-Tat or/and Grim Trigger Strategy. ? What are some common factors in cooperation, deterrence and credibility? ? How do we make this our dominated strategy? Theoretic Bargaining ? Game Theory: Auction and Bargaining ? Bargaining defined (in Game theory term) ? Stages and Art of Bargaining ? A Game of bargaining ? Forming Beliefs ? Commitment ? Settlement Escrows ? Optimal Bargaining strategy ? Belief Matters ? Bargaining power ? Take-it or Leave-It offers Group Project / Midterm ? In-class Presentation (Group 1) Class Discussion ? Discuss and contrast Auctions vs. Bargaining ? How does one reach ultimate bargaining strengths? Discuss experience of negotiating with deadlines, how is that different than infinite deadlines? ? Walk through the in-class civil lawsuit example.
Discuss the possible outcome and share your experience (if any. ) See Recommended Reading List Guest Speaker (TBD) 7 See Recommended Reading List In-class Group Presentation 8 Group Project / Midterm ? In-class Presentation (Group 2 to 7) N/A In-class Group Presentation 9 Bargaining: the Practical Approach ? The 2 node-tree ? Tree constructions ? Roll-back ? First or Second mover advantages ? Example: Hot vs. Cold days ? BATNA (Fall back position) ? The importance of Commitment (Full vs.
Partial) ? Settlement Escrows ? Belief Matters ?Bargaining power ? Take-it or Leave-It offers Group Project / Midterm ? In-class Presentation (Group 8) Class Discussion ? Two-node tree is rather simple, what is the importance of it? ? What is the ultimate time to check “rollback” and why? ? Why is commitment important? ? Discuss and share experience how one can establish credibility? ? Illustrate and give examples of Settlement Escrows ? Explain the rationale of “rolling forward and reason back? ” See Recommended Reading List In-class Group Presentation 10 The art of Auction ? Understanding of Bidding competition and different behaviors ? Evolution of Auctions ? Economics: Revenue Equivalent ?Auction Defined and Overview ? Game Theory: Auction and Bargaining ? Various type of auctions: ? English/Dutch/Japanese ? Common vs. Private-valued Auctions Class Discussion ? Discuss and contrast Auctions vs. Bargaining ? How does one reach ultimate bargaining strengths? ? Discuss experience of negotiating with deadlines, how is that different than infinite deadlines? ? Walk through the in-class civil lawsuit example. Discuss the possible outcome and share your experience (if any. ) See Recommended Reading List Guest Speaker (TBD) 11 Auction and its specifics ? Open-Bid auctions and its application ? Sealed-Bid auctions and its application ? The winner’s curse ?Seller’s information and number of Bidders ? Revenue Equivalence Theory ? Auctions: Good, Bad and the Ugly ? Anglo-Dutch Auction and how it works Class Discussion ? Discuss and provide examples of Open-bid and Seal-bid auctions.
? Which one is better and why? How about the Singapore Casino license bidding auction? ? How do we make the bidding process more appealing? ? If we all know about the Winner’s Curse, why do people fall into it? ? What are examples of Anglo-Dutch auction? Does it really work? See Recommended Reading List Guest Speaker (TBD) 12 Incentive schemes, Screening, Signaling ? Better vs. Informed players ? Various type of Incentive schemes ?Fixed payment ? Observatory effort ? Fixed and Bonus Schemes ? Screening ? Definition and examples ? Problems: inefficiency and Leakage ? Signaling ? How does it work? ? Hiding from Signals ? Cost efficiency ? Example: Getting a MBA degree Class Discussion ? How do we know who’s who: Better vs. Less informed players? ? How do we maximize employee loyalty and efficiencies through Game theory (various incentive scheme) ? Discuss examples of Screening? Does it really work? ? Do you agree that Education is a form of Signaling and Screening? Why are you studying a MBA degree? See Recommended Reading List Class party (contributions from class fund! )