[...]... competitors when formulating their moves because they have no control over how their competitor might play Mathematics dominates much of formal game theory In an attempt to maximize this author’s book royalties, however, Game Theory at Work keeps the math to a minimum Fortunately, you can learn most of the practical applications of game theory without using any math more complicated than addition and subtraction... threat to fight until victory, they would give up and you would not have to risk your troops Unfortunately, a mere threat to fight to the finish lacks credibility, so what should you do? You should burn your own boats! Island Castle Figure 2 CHAPTER 2 THREATS, PROMISES, AND SEQUENTIAL GAMES 11 Imagine that if your boats were burned, it would take many months for your allies to bring new boats to the island... threat, and all three of them would be better off Circumstances in life and business often arise where you would gain from making a believable threat Unfortunately, game theory shows that many threats can and should be ignored, since a man is never as good as his word in game theory land Game theory, fortunately, provides many means of making credible threats GAME THEORY AT WORK 10 ELIMINATING OPTIONS... boss that you will leave if you don’t get the money 12 GAME THEORY AT WORK If you simply tell your boss that you will quit if you don’t get the raise, she might not believe your threat For your boss to take your threat to quit seriously, she must think that it would be in your selfinterest to walk away if you’re not given the money The best way to make your threat credible would be to prove to the... other games you will have to guess at what others know that you don’t Occasionally competitors will have to work together to survive, while in other situations cooperation will be impossible since the winner will take all Many of the games will seemingly have nothing to do with business, but will be presented to give you insights into strategy Since the games that businesspeople play are both complicated... Figure 3 presents the game tree for this raise negotiation game The game starts at A where you ask for a raise Then at B your boss has the option of giving it to you or not If she does not give you the raise, the game moves to C, where you either stay at your job or quit There are thus three possible outcomes to the game, and Figure 3 shows what your boss gets at each outcome Obviously, your boss would consider... for the castle your enemies will surrender only if they believe you will fight until victory To credibly commit to never retreating, you could first order your troops to fight to the death, then leave your troops behind on the island If your enemies see you leave and believe that no one else on the island has the ability to call off the attack, then they will think that your troops will fight to the end Cutting... true catalyst of business honesty is repeated play If Acme plans to play the game in Figure 4 over and over again, then Acme probably shouldn’t take advantage of a customer If Acme were to cheat a customer at B, it would do better for that one game In future games, however, customers would abandon a dishonest Acme Consequently, a completely selfish and greedy Acme would profit from treating its customers... job to another candidate This vacation strategy is flawed because Sue would never believe that you would really implement it It would always be 20 GAME THEORY AT WORK in your interests to tell Sue she has only a week, but then tell your HR manager to give Sue an extension if she ignored your deadline CRIMINAL COMPENSATION Should we let criminals purchase clemency? Say that a captured criminal offers to. .. determined to fight to the end, then your army would ultimately be victorious Unfortunately, the battle would be long and bloody You would lose much of your army in a full-blown battle for the castle, so you desperately pray for your enemy’s surrender Since the enemy knows that it would lose the battle, one might think that it indeed should surrender Unfortunately, your enemy has heard of your compassion . alt="" GAME THEORY AT WORK How to Use Game Theory to Outthink and Outmaneuver Your Competition This page intentionally left blank. GAME THEORY AT WORK How to Use Game Theory to Outthink and Outmaneuver. intentionally left blank. GAME THEORY AT WORK How to Use Game Theory to Outthink and Outmaneuver Your Competition This page intentionally left blank. Introduction “Honour and profit lie not in one. over how their competitor might play. Mathematics dominates much of formal game theory. In an attempt to maximize this author’s book royalties, however, Game The- ory at Work keeps the math to