Strategy and game theory for management
- https://www.coursera.org/learn/strategy-and-game-theory-for-management/
Dominant strategy¶
A Dominant Strategy is the best strategy (a best reply / earns the highest payoff) in every case, no matter what other players do.
Why selfish people for selfish reasons end up cooperating? When emotions are involved people are more willing to take collaborative actions. - Prisoner's dilemma The Prisoner's Dilemma
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Doctors prescribing brand-name medications instead of generics:
- Dominant Strategy: If doctors receive incentives from pharmaceutical companies for prescribing brand-name drugs, they might choose this option regardless of the patient’s financial situation or the efficacy of generics. This can be seen as a dominant strategy because it maximizes their personal benefit (e.g., financial incentives) regardless of other factors.
- Prisoner’s Dilemma: If all doctors prescribe brand-name drugs, the overall cost of healthcare increases, which is a worse outcome for society. However, if each doctor individually chooses to prescribe generics, the overall cost decreases, benefiting everyone. The dilemma arises because each doctor might still choose the brand-name drug to maximize their personal gain, leading to a suboptimal outcome for society.
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Smoking corporations agreeing to stop smoking advertisements:
- Dominant Strategy: If one corporation stops advertising while others continue, it might lose market share. Therefore, the dominant strategy for each corporation is to continue advertising to maintain or increase market share.
- Prisoner’s Dilemma: If all corporations agree to stop advertising, they could collectively reduce the societal harm caused by smoking. However, there was a hidden benefit since smoking consumption was not correlated to ads. Also that resulted in a strong blocker for new companies addressing the smoking market without the possibility to be advertised.
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Religion (to be less selfish in favor of other people):
- Dominant Strategy: In a religious context, individuals might adopt altruistic behaviors because they believe it maximizes their spiritual or social rewards, regardless of others’ actions.
- Prisoner’s Dilemma: If everyone acts altruistically, society as a whole benefits. However, if individuals act selfishly, they might gain short-term benefits at the expense of others, leading to a less cooperative and more fragmented society.
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The classical prisoner’s dilemma case:
- Dominant Strategy: In the classic scenario, each prisoner has a dominant strategy to betray the other, as it minimizes their own potential punishment regardless of the other’s choice.
- Prisoner’s Dilemma: If both prisoners betray each other, they receive a moderate punishment, which is worse than if they both remained silent. However, the fear of being betrayed leads them to choose betrayal, resulting in a suboptimal outcome for both.
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Problem/tragedy of the commons
What is the tragedy of the commons? - Nicholas Amendolare