Tuesday, April 1, 2014

Thinking Strategically

If every decision we made were in a static environment, life would be relatively easy. But in real life, others (competitors, bystanders, teammates etc) react to our decisions, which changes the environment. Enter Game Theory, which is the study of strategic decision-making. In Thinking Strategically, retired Princeton professor and economist Avinash Dixit takes the reader on a whirlwind tour of the field across a range of subjects, from business to sports to politics.

Dixit shows the reader how to categorize any strategic situation. Then, category by category he breaks down the optimal behaviour on the part of the protagonist and his competitor. When looked at through Dixit's framework, a course of action often becomes obvious, even if it is not so to begin with. An opponent's reaction can be readily deciphered when some simple assumptions are applied.

Of course, life is rarely so neat as to make expected values and probabilities so easy to calculate. In the book, however, such things are often assumed in fields as uncertain as business/sports etc. To those of us who participate in fields (e.g. investing) where we just can't put blind faith in expected values, this book may feel a little too idealistic. Nevertheless, the theory is useful to know, and can still apply helpfully within a *range* of values much of the time.

The theory is supplemented with a number of historical examples illustrating where some historical figures went right or wrong depending on their strategic circumstances. For anyone looking for an intro to Game Theory, I'd say this book should be on your list.

2 comments:

Anonymous said...

I came across your blog and was really impressed with your old posts. However your more recent stock posts are linked to seekingalpha and can't view by the public so that's a big dismay. Another annoying thing on this blog is that the page keeps on refreshing, and there are too many distracting advertisements. It seems like you are more interested in generating revenue instead of sharing. What a pity...

Saj Karsan said...

Thanks, Anon. If only everyone did everything for you for free! Your employer must be getting a steal what with you donating your services and all.

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