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"Game theory. The Art of Strategic Thinking in Business and Life / Avinash Dixit and Barry Neilbuff ": Mann, Ivanov and Ferber; Moscow; 2015

ISBN 978-5-00057-311-2

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Game theory is about rigorous strategic thinking. This is the art of predicting the opponent's next move, coupled with the knowledge that he is doing the same. The main part of the theory contradicts ordinary worldly wisdom and common sense, therefore, its study can form a new view of the structure of the world and the interaction of people. With examples from cinema, sports, politics, history, the authors show how almost all companies and people are involved in interactions described by game theory. Knowledge of this subject will make you more successful in business and life.

Barry J. Neilbuff, 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 with permission from W.W. Norton & Company, Inc. and the literary agency Andrew Nurnberg

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

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, edition in Russian, design. LLC "Mann, Ivanov and Ferber", 2015

Publishing partner's foreword

IN GREAT BOOKSTORES I always want to buy a lot of books at once, especially those devoted to my favorite topics: management, marketing and education. I would certainly 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 re-read it again.

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

At first glance, it can be concluded that, due to the human factor and simple chance, the outcome of the conflict is almost impossible to predict. But this is not the case. Each of our choices is a choice of a dominant strategy (the most profitable given 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, acquaintance with game theory became intuitive. This happened when I started working with large clients: negotiations with them required more thorough preparation. In small and fast transactions, it is important to know the product perfectly and understand the client's needs. When it comes to large amounts, 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 tried to ensure that both sides emerged victorious. The same games also 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 in it everything that was incomprehensible to me turned out to be a long thought-out model of behavior.

In my opinion, a special merit of the authors is that in the book they reduced mathematics to a minimum. Avinash Dixit and Barry Neilbuff have put together simple and 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 in comparison with the language of mathematics. Despite this, the book cannot be classified as one that can be read in one evening. I think the interested reader, who has taken it in hand, will not regret the time spent.

Ivan Samolov,

marketing director

All our students, from whom we have learned a lot (especially Setu. - B.N.)

Foreword

WE HAVE NOT PLANNED 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, who decided to rewrite Cervantes' novel Don Quixote. With a lot of effort, Menard created new version the novel, word for word repeating the original. 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 equal to Don Quixote, so we still had to change something in the revised and revised edition. In fact, b O Most of the book contains completely new material. New fields of application, new concepts and new points of view have emerged. Since the publication of the first book, so much has appeared that we felt it necessary to give this edition a new name. On the other hand, although we use new words, the concept remains the same. We want to change your perception of 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 dominated in those days. Since then, we have fully realized how important cooperation is in strategic situations and why good strategy must be an acceptable mix of competition and collaboration (one of us wrote a book on this topic: Competitive Business Collaboration).

The foreword to the first edition of the book began like this: "Strategic thinking is the ability to surpass the opponent, knowing that the opponent is also trying to surpass you." Now we add to these words: it is also the ability to find ways for cooperation, even if others are guided only by their own interests, and not selflessness. It is the ability to convince others (and even yourself) to do what you promise. It 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 book The Art of Strategy reflects this more mature and wiser point of view. But there is also continuity. While we offer more real-life stories in the 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 when traveling on business, offering "seven steps to assured strategic success." The situations you will encounter will be so varied that you will achieve better results by knowing some general strategy principles and adapting them to the strategy games you play.

Businessmen and corporations must develop effective strategies competition in order to survive, and to find opportunities for cooperation to "make the pie bigger." Politicians must come up with campaign strategies to be elected and legislative strategies to make their visions a reality. Football coaches develop strategies that players must follow on the pitch. Parents who are trying to get good behavior from their children must also become amateur strategists - children are already great experts in this matter.

Effective strategic thinking in such diverse contexts is still a true art. Nevertheless, in essence, it boils down to a number of basic principles from the field of the new science of strategy - game theory. In writing this book, we proceeded from the premise that knowledge of these principles will enable readers of different educational levels and representatives of different professions to become more effective strategists.

Some people doubt whether it is possible to apply logic and science to the world, because people behave irrationally in it. But it turned out that the chaos of this world has its own system. We have used some of the most valuable recent advances in behavioral game theory, which takes human psychology and bias into account, thereby incorporating the social factor into game theory. As a result, game theory allows us to get much more meaningful results by studying people as they are, and not as we would like to see them. All of these ideas are analyzed in this book.

Game theory is a relatively young science, just over seventy years old, yet it has already provided a lot of useful information at the disposal of practicing strategists. But like all other sciences, game theory is too overloaded with technical terminology and mathematical calculations. These are undeniably important tools for scientific research, but they limit the number of people who can understand the basic concepts of game theory exclusively to experts in this field. The main motivation for writing Strategic Thinking was our belief that game theory is too interesting and important to be limited to academic journals. The basic concepts of this theory can be useful in many areas, including business, politics, sports, and even everyday social interaction. This is why we have formulated the most important concepts of game theory in a more understandable language and replaced purely theoretical reasoning with real-life examples.

We are pleased that this point of view is becoming more widespread. Game theory is one of the most popular electives at Princeton and Yale, as is most of the other educational institutions where it is taught. Game theory is an essential part of MBA strategy courses, and Google searches for the keyword "game theory" contain links to millions of pages. Mentions of game theory can be found in newspaper articles, commentator columns, and public policy discussions.

Much credit for the development of game theory belongs to the Nobel Committee on Economics, which awarded two Nobel Prizes in game theory: in 1994 - to John Harsagni, John Nash and Reinhard Zelten, and in 2005 - to Robert Aumann and Thomas Schelling. Sylvia Nazar, who wrote the best-selling biography of John Nash, A Beautiful Mind: The Life of Mathematical Genius and Nobel Laureate John Nash, and the creators of the award-winning feature film of the same name, and the authors of many other books on the subject. Perhaps this is also our merit: the book "Strategic Thinking" has sold 250,000 copies. It has been translated into many languages ​​and has become a bestseller in Japanese and Hebrew.

We owe a lot to Thomas Schelling. His work on nuclear strategies, in particular The Strategy of Conflict and Arms and Influence, are well-known. In fact, Schelling laid the foundation for game theory even when he was engaged in research in the field of nuclear conflict. Equally important and significant is Michael Porter's book Competitive Strategy, which applies the basic concepts of game theory in the context of business strategy. Our comments and links to books by Thomas Schelling, Michael Porter and many other authors can be found at the end of the book, in the "Further Reading" section.

We do not associate the ideas presented in this book with a specific context - on the contrary, we offer a wide range of examples for each basic principle of game theory. This means that readers with different educational backgrounds and professional skills will find something useful in this book; make sure the same principles guide strategies in less familiar situations. We hope that this will allow them to take a fresh look at many events of the past and present. Working on the book, we drew on the experience of a large number of readers who shared with us examples from a wide variety of areas of life, such as literature, cinema and sports. Serious scholars may think this oversimplifies the topic of strategy, but we are convinced that familiar examples are an effective tool for communicating important ideas.

The idea to write a book for more affordable level what a university course is, suggested Hal Varian, who is now Google's chief economist and is an emeritus professor at the University of California, Berkeley. In addition, he shared with us many interesting ideas and comments on the first draft of the book. Drake McFeely of W. W. Norton was an excellent, albeit very strict, editor of Strategic Thinking. He put a lot of effort into turning our academic manuscript into a lively, interesting text. Many readers of the previous edition sent us good reviews, advice and criticism, which helped us immensely in the creation of The Art of Strategy. At the risk of missing someone, we cannot but name those people to whom we would like to express our special gratitude. Our co-authors on various books Ian Ayres, Adam Brandenburger, Robert Pindyke, David Reilly and Susan Skeet have generously shared some very useful information with us. David Austen-Smith, Alan Blinder, Seth Masters, Benjamin Polak, Karl Shapiro, Terry Vaughan, and Robert Willig have had major influences on this book, as well as on Strategic Thinking. Jack Repcheck of W. W. Norton has been unwavering support and understanding for us as a highly astute editor of The Art of Strategy. Our manuscript editors Janet Byrne and Catherine Pichotta generously corrected our mistakes. If you do not find mistakes in our book, you should thank them for this.

We would like to express special thanks to Andrew St. George, literary critic of the Financial Times. Describing Strategic Thinking as the most interesting book he read in 1991, he said, “It's like going to the gym to train your mind” (Financial Times Weekend, December 7-8, 1991). This gave us the idea to name some of the most exciting challenges we pose to our readers as “Thinking Training Challenges.” Finally, John Morgan of the University of California, Berkeley gave us a powerful incentive when he threatened, "If you don't release a revised and revised edition, I will write a competing book." And when we saved him from such worries, he helped us with his ideas and suggestions.

Avinash Dixit

Barry J. Neilbuff, 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 with permission from W.W. Norton & Company, Inc. and the literary agency Andrew Nurnberg

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

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, edition in Russian, design. LLC "Mann, Ivanov and Ferber", 2015

* * *

Publishing partner's foreword

IN GREAT BOOKSTORES I always want to buy a lot of books at once, especially those devoted to my favorite topics: management, marketing and education. I would certainly 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 re-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 of the parties pursues its own interests and is looking for the most profitable solution, possibly to the detriment of rivals. The simplest examples of such games are chess, card games, and sports. All of them are conducted according to the set rules that must not be violated. But in real life, rivals can go to great lengths to win: they threaten, manipulate, deceive - for example, the relationship between parents and a disobedient child.

At first glance, it can be concluded that, due to the human factor and simple chance, the outcome of the conflict is almost impossible to predict. But this is not the case. Each of our choices is a choice of a dominant strategy (the most profitable given 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, acquaintance with game theory became intuitive. This happened when I started working with large clients: negotiations with them required more thorough preparation. In small and fast transactions, it is important to know the product perfectly and understand the client's needs. When it comes to large amounts, 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 tried to ensure that both sides emerged victorious. The same games also 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 in it everything that was incomprehensible to me turned out to be a long thought-out model of behavior.

In my opinion, a special merit of the authors is that in the book they reduced mathematics to a minimum. Avinash Dixit and Barry Neilbuff have put together simple and 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 in comparison with the language of mathematics. Despite this, the book cannot be classified as one that can be read in one evening. I think the interested reader, who has taken it in hand, will not regret the time spent.

Ivan Samolov, Marketing Director of the Samolov Group

To all our students from whom we have learned a lot (especially Setu. - B. N. )

Foreword

WE HAVE NOT PLANNED 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. With a lot of effort, Menard created a new version of the novel, word for word repeating the original. 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 equal to Don Quixote, so we still had to change something in the revised and revised edition. In fact, b 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 much has appeared that we felt it necessary to give this edition a new name. On the other hand, although we use new words, the concept remains the same. We want to change your perception of 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 dominated in those days. Since then, we have fully realized how important cooperation plays in strategic situations and why a good strategy must necessarily be an acceptable combination of competition and cooperation (one of us wrote a book on this topic: Competitive Business Cooperation (2)) ...

The foreword to the first edition of the book began like this: "Strategic thinking is the ability to surpass the opponent, knowing that the opponent is also trying to surpass you." Now we add to these words: it is also the ability to find ways for cooperation, even if others are guided only by their own interests, and not selflessness. It is the ability to convince others (and even yourself) to do what you promise. It 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 book The Art of Strategy reflects this more mature and wiser point of view. But there is also continuity. While we offer more real-life stories in the 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 when traveling on business, offering "seven steps to assured strategic success." The situations you will encounter will be so varied that you will achieve better results by knowing some general strategy principles and adapting them to the strategy games you play.

Businesses and corporations must develop effective competitive strategies to survive, and find opportunities for collaboration to "make the pie bigger." Politicians must come up with campaign strategies to be elected and legislative strategies to make their visions a reality. Football coaches develop strategies that players must follow on the pitch. Parents who are trying to get good behavior from their children must also become amateur strategists - children are already great experts in this matter.

Effective strategic thinking in such diverse contexts is still a true art. Nevertheless, in essence, it boils down to a number of basic principles from the field of the new science of strategy - game theory. In writing this book, we proceeded from the premise that knowledge of these principles will enable readers of different educational levels and representatives of different professions to become more effective strategists.

Some people doubt whether it is possible to apply logic and science to the world, because people behave irrationally in it. But it turned out that the chaos of this world has its own system. We have used some of the most valuable recent advances in behavioral game theory, which takes human psychology and bias into account, thereby incorporating the social factor into game theory. As a result, game theory allows us to get much more meaningful results by studying people as they are, and not as we would like to see them. All of these ideas are analyzed in this book.

Game theory is a relatively young science, just over seventy years old, yet it has already provided a lot of useful information at the disposal of practicing strategists. But like all other sciences, game theory is too overloaded with technical terminology and mathematical calculations. These are undeniably important tools for scientific research, but they limit the number of people who can understand the basic concepts of game theory exclusively to experts in this field. The main motivation for writing Strategic Thinking was our belief that game theory is too interesting and important to be limited to academic journals. The basic concepts of this theory can be useful in many areas, including business, politics, sports, and even everyday social interaction. This is why we have formulated the most important concepts of game theory in a more understandable language and replaced purely theoretical reasoning with real-life examples.

Scientific editor Nadezhda Reshetnik

Published with permission from W.W. Norton & Company, Inc. and the literary agency Andrew Nurnberg

All rights reserved. No part of this publication may be reproduced for any purpose in any form or by any means, whether electronic or mechanical, including photocopying and magnetic recording, unless the publisher has written permission to do so.

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, edition in Russian, design. LLC "Mann, Ivanov and Ferber", 2017

* * *

All our students, from whom we have learned a lot (especially Setu. - B.N.)

Foreword

WE HAVE NOT PLANNED 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
This is the story of Jorge Borges "Pierre Menard, author of Don Quixote". Approx. per.

Who decided to rewrite Cervantes' novel Don Quixote. With a lot of effort, Menard created a new version of the novel, word for word repeating the original. 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 equal to Don Quixote, so we still had to change something in the revised and revised edition. In fact, b 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 much has appeared that we felt it necessary to give this edition a new name. On the other hand, although we use new words, the concept remains the same. We want to change your perception of 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 dominated in those days. Since then, we have fully realized how important cooperation is in strategic situations and why a good strategy must necessarily be an acceptable combination of competition and cooperation. (One of us wrote a book on this topic: Competitive Business Cooperation 2
Brandenburger A., ​​Neilbuff B. Competitive cooperation in business. - M .: Keyes, 2012.

The foreword to the first edition of the book began like this: "Strategic thinking is the ability to surpass the opponent, knowing that the opponent is also trying to surpass you." Now we add to these words: it is also the ability to find ways for cooperation, even if others are guided only by their own interests, and not selflessness. It is the ability to convince others (and even yourself) to do what you promise. It 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 book The Art of Strategy reflects this more mature and wiser point of view. But there is also continuity. While we offer more real-life stories in the 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 when traveling on business, offering "seven steps to assured strategic success." The situations you will encounter will be so varied that you will achieve better results by knowing some general strategy principles and adapting them to the strategy games you play.

Businesses and corporations must develop effective competitive strategies to survive, and find opportunities for collaboration to "make the pie bigger." Politicians must come up with campaign strategies to be elected and legislative strategies to make their visions a reality. Football coaches develop strategies that players must follow on the pitch. Parents who are trying to get good behavior from their children must also become amateur strategists - children are already great experts in this matter.

Effective strategic thinking in such diverse contexts is still a true art. Nevertheless, in essence, it boils down to a number of basic principles from the field of the new science of strategy - game theory. In writing this book, we proceeded from the premise that knowledge of these principles will enable readers of different educational levels and representatives of different professions to become more effective strategists.

Some people doubt whether it is possible to apply logic and science to the world, because people behave irrationally in it. But it turned out that the chaos of this world has its own system. We have used some of the most valuable recent advances in behavioral game theory, which takes human psychology and bias into account, thereby incorporating the social factor into game theory. As a result, game theory allows us to get much more meaningful results by studying people as they are, and not as we would like to see them. All of these ideas are analyzed in this book.

Game theory is a relatively young science, just over seventy years old, yet it has already provided a lot of useful information at the disposal of practicing strategists. But like all other sciences, game theory is too overloaded with technical terminology and mathematical calculations. These are undeniably important tools for scientific research, but they limit the number of people who can understand the basic concepts of game theory exclusively to experts in this field. The main motivation for writing Strategic Thinking was our belief that game theory is too interesting and important to be limited to academic journals. The basic concepts of this theory can be useful in many areas, including business, politics, sports, and even everyday social interaction. This is why we have formulated the most important concepts of game theory in a more understandable language and replaced purely theoretical reasoning with real-life examples.

We are pleased that this point of view is becoming more widespread. Game theory is one of the most popular electives at Princeton and Yale, as is most of the other educational institutions where it is taught. Game theory is one of the most important parts of MBA strategy courses 3
Master of Business Administration (Master of Business Administration, English) - qualification degree in management. Approx. ed.

And Google search results for the keyword "game theory" contain links to millions of pages. Mentions of game theory can be found in newspaper articles, commentator columns, and public policy discussions.

Much credit for the development of game theory belongs to the Nobel Committee on Economics, which awarded two Nobel Prizes in game theory: in 1994 - to John Harsagni, John Nash and Reinhard Zelten and in 2005 - to Robert Aumann and Thomas Schelling 4
Three more Nobel Prizes have been awarded for research in the field of preference identification mechanisms and the information economy (both of these areas are closely related to game theory): in 1996 - William Vickrey and James Mirrlis; 2001 to George Akerlof, Michael Spence and Joseph Stiglitz; in 2007 - to Leonid Gurvich, Eric Muskin and Roger Myerson.

Sylvia Nazar, who wrote the best-selling biography of John Nash, A Beautiful Mind: The Life of Mathematical Genius and Nobel Laureate John Nash, and the creators of award-winning feature film of the same name 5
In the Russian box office - "Mind Games". Approx. per.

And the authors of many other books on this topic. Perhaps this is also our merit: the book "Strategic Thinking" has sold 250,000 copies. It has been translated into many languages ​​and has become a bestseller in Japanese and Hebrew.

We owe a lot to Thomas Schelling. His work on nuclear strategies, in particular The Strategy of Conflict 6
Schelling T. Strategy of the conflict. - M .: IRISEN, 2007.

And Arms and Influence are well-earned. In fact, Schelling laid the foundation for game theory even when he was engaged in research in the field of nuclear conflict. Equally Important and Significant is Michael Porter's book Competitive Strategy 7
Porter M. Competitive strategy. Methodology for analyzing competitors' industries. - M .: Alpina Publisher, 2011.

In which the basic concepts of game theory are applied in the context of business strategy. Our comments and links to books by Thomas Schelling, Michael Porter and many other authors can be found at the end of the book, in the "Further Reading" section.

We do not associate the ideas presented in this book with a specific context - on the contrary, we offer a wide range of examples for each basic principle of game theory. This means that readers with different educational backgrounds and professional skills will find something useful in this book; make sure the same principles guide strategies in less familiar situations. We hope that this will allow them to take a fresh look at many events of the past and present. Working on the book, we drew on the experience of a large number of readers who shared with us examples from a wide variety of areas of life, such as literature, cinema and sports. Serious scholars may think this oversimplifies the topic of strategy, but we are convinced that familiar examples are an effective tool for communicating important ideas.

Hal Varian, now Google's chief economist and professor emeritus at the University of California at Berkeley, came up with the idea of ​​writing a book at a more accessible level than a university course is. In addition, he shared with us many interesting ideas and comments on the first draft of the book. Drake McFeely of W. W. Norton was an excellent, albeit very strict, editor of Strategic Thinking. He put a lot of effort into turning our academic manuscript into a lively, interesting text. Many readers of the previous edition sent us good reviews, advice and criticism, which helped us immensely in the creation of The Art of Strategy. At the risk of missing someone, we cannot but name those people to whom we would like to express our special gratitude. Our co-authors on various books Ian Ayres, Adam Brandenburger, Robert Pindyke, David Reilly and Susan Skeet have generously shared some very useful information with us. David Austen-Smith, Alan Blinder, Seth Masters, Benjamin Polak, Karl Shapiro, Terry Vaughan, and Robert Willig have had major influences on this book, as well as on Strategic Thinking. Jack Repcheck of W. W. Norton has been unwavering support and understanding for us as a highly astute editor of The Art of Strategy. Our manuscript editors Janet Byrne and Catherine Pichotta generously corrected our mistakes. If you do not find mistakes in our book, you should thank them for this.

We would like to express special thanks to Andrew St. George, literary critic of the Financial Times. Describing Strategic Thinking as the most interesting book he read in 1991, he said, “It's like going to the gym to train your mind” (Financial Times Weekend, December 7-8, 1991). This gave us the idea to name some of the most exciting challenges we pose to our readers as “Thinking Training Challenges.” Finally, John Morgan of the University of California, Berkeley gave us a powerful incentive when he threatened, "If you don't release a revised and revised edition, I will write a competing book." And when we saved him from such worries, he helped us with his ideas and suggestions.

Avinash Dixit

Barry Neilbuff

Introduction. How should one behave in society?

OUR ANSWER to this question has nothing to do with ethics or etiquette. We are not going to compete with philosophers, preachers or parents. The subject of our reflections is not too sublime, but it has no less influence on life than moral norms and rules of behavior. This book is about strategic behavior. We are all strategists, whether we like it or not. It is better to be a good strategist than a bad one, and the purpose of this book is to help you develop your skills in finding and applying effective strategies.

Work and life in society boils down to a continuous stream of decisions. What career to choose, how to run a company, whom to choose as a life partner, how to raise children, and whether to run for president are just some of the life-changing decisions you have to make. All of these situations have one thing in common: you are not in a vacuum. On the contrary, you are surrounded by people who actively make decisions that are somehow related to yours. And this relationship of decisions has a big impact on your thoughts and actions.

As an illustration, consider the difference between the decisions of the lumberjack and the general. When a lumberjack decides how to cut wood, he expects no resistance from him: his environment is neutral. But when a general tries to defeat the enemy's army, he must anticipate and overcome any resistance that could interfere with his plans. Like a general, you should be aware of the fact that your business rivals, your spouse-to-be, and even your children are strategic thinkers. Their goals often conflict with your goals, but they may overlap with them. Your own choices should allow for the possibility of conflict and create conditions for cooperation. This book will teach you not only to think strategically, but also to turn your thoughts into actions.

Game theory Is a branch of the social sciences that studies strategic decision making. Game theory covers the most different games- from chess to parenting, from tennis to takeovers, from advertising to arms control. The Hungarian-born English humorist George Mikes once said: “Many people on the continent believe that life is a game; the British think that cricket is a game. " In our opinion, both are right.

All games require a wide variety of skills. Basic skills such as hitting the basket in basketball, knowledge of legal precedents, or the ability to maintain a cool air in poker are one skill category; the ability to think strategically is different. Strategic thinking builds on basic skills and helps you understand how to get the most out of them. If you know the laws, you should develop a strategy to protect your client. If you know about how much how well your soccer team is at jogging or passing, and how well the opposing team is building their defenses, it is up to you as the coach to decide how what exactly should the players do: run or pass. Sometimes, as in the case of nuclear confrontation, thinking strategically also means knowing when it is appropriate to end the game.

Game theory as a science is not yet fully formed, and strategic thinking in many respects remains an art. Our overarching goal is to make you practitioners who are fluent in this art, but this requires a serious knowledge of the basic concepts and methods of science called "strategy". For this reason, we have based our book on a combination of two approaches. Chapter 1 begins with examples of the art of strategy that show how strategic questions arise in a wide variety of decision-making processes. We introduce readers to effective, less effective, and even downright bad strategies that were used by participants in games that took place in real life. All of these examples reflect a specific conceptual model. In chapters 2–4, we cover the foundations of strategic science with examples, each illustrating a principle. Then we focus on the concepts and strategies that allow us to find the right course of action in specific situations: how to mix moves if another player can use any of your systemic actions to their advantage; how to change the course of the game in your favor, as well as how to manipulate information in the process of strategic interaction. Finally, we outline a number of general categories of strategic situations, such as negotiation, auctions, elections, and incentive creation, that will help you see all of these principles and strategies in action.

Science and art differ from each other in their very essence: science is studied adhering to a systematic, logical approach, while art can only be mastered through the analysis of real examples, through the accumulation of experience and through persistent practice. In describing the foundations of strategic science, you will find principles and general rules: for example, reverse reasoning is discussed in Chapter 2, and Nash equilibrium in Chapter 4. On the other hand, the art of strategy, which you may need in a variety of situations, will require additional effort. Each particular situation has unique characteristics. They need to be considered, as well as the general principles of strategy science. The only way to improve your skills in the art of strategy is to use inductive inference, that is, to analyze what steps have been taken in similar situations in the past. We intend to increase your strategic IQ with numerous examples, including training examples included in each chapter, as well as examples collected in the final chapter.

You will find in the book a variety of examples: from familiar, rather simple or funny (taken, as a rule, from literature, sports or cinema) to very ominous, such as nuclear confrontation. The examples of the first group are just a neat and fun way to introduce you to the basic concepts of game theory. With regard to the examples of the second group, many readers may think that the horror that the topic of nuclear war inspires makes it impossible to rationalize it. But we believe that since the Cold War is long over, the game-theory aspects of the arms race and the Cuban crisis can be analyzed for strategic logic, moving somewhat away from their emotional component.

Case study analysis is similar to what you encountered in class at business school. Each example describes a set of specific circumstances to which you should apply the principles in the relevant chapter in order to determine the right strategy for a given situation. In some examples, open questions remain, but this is exactly what happens in real life. There are times when there is no unequivocally correct solution, but there are only faulty ways to overcome the problem. Careful analysis of the case study before you read the next chapter will help you understand the ideas in the current chapter much better than just reading the main text. In order for you to consolidate the knowledge gained in practice, the final chapter contains a series of training examples, arranged in ascending order of difficulty level.

We hope that by the end of this book you will be more effective managers, negotiators, athletes, politicians, or parents. A word of caution: Not all strategies that will help you achieve your goals will appeal to your opponents. If you want to play fair, tell them about our book.

Part I

Chapter 1. Ten Stories of Strategy

LET'S BEGIN A BOOK with ten strategy stories from different walks of life. They give a first glimpse of what the optimal course of action is. Many of you have undoubtedly found yourself in similar situations in your daily life and found the right solution either through reflection or through trial and error. For some, some of the proposed solutions may be unexpected, but we give these examples here not to surprise you. Our goal is to show that such situations are common, that they all boil down to a certain set of interrelated questions, and that a systematic analysis of these situations can bear fruit.

In the following chapters, we offer guidelines for creating effective strategies based on these concepts. Treat these stories as appetizers before the main course: they are only meant to whet your appetite, not satiate.

Story 1. The number guessing game

Believe it or not, we invite you to play the same game with us. We chose a number between 1 and 100; your task is to guess this number. If you name it correctly on the first try, we'll pay you $ 100.

Of course, we are not going to pay you $ 100 at all; it would be too expensive, especially considering that we intend to help you with guessing the number. But when you play, we want you to think that we will actually pay you this money; and we will play with you on the same terms.

Genre:

Description of the book: The authors of this book are real professionals in the field of economics. For many years they have been engaged in research activities in the field of strategies that are applied to planning a trade or business. They have always sought to understand why the participants in numerous struggles seek to achieve their goal. They tried to convey to modern readers that modern life cannot be without threats, manipulation and blackmail. In real life, it is very important to be ready for everything, so that at the most necessary moment you will not be left without everything.

In these days of active fight against piracy, most of the books in our library have only short fragments for acquaintance, including the book Game Theory. The art of strategic thinking in business and life. Thanks to this, you can understand whether you like this book and whether you should buy it in the future. Thus, you support the work of the writer Barry J. Neilbuff by legally purchasing the book if you like its summary.

Avinash Dixit and Barry Neilbuff

Game theory. The art of strategic thinking in business and life

Scientific editor Nadezhda Reshetnik

Published with permission from W.W. Norton & Company, Inc. and the literary agency Andrew Nurnberg

All rights reserved. No part of this publication may be reproduced for any purpose in any form or by any means, whether electronic or mechanical, including photocopying and magnetic recording, unless the publisher has written permission to do so.

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, edition in Russian, design. LLC "Mann, Ivanov and Ferber", 2017

* * *

All our students, from whom we have learned a lot (especially Setu. - B.N.)

Foreword

WE HAVE NOT PLANNED 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, who decided to rewrite Cervantes' novel Don Quixote. With a lot of effort, Menard created a new version of the novel, word for word repeating the original. 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 equal to Don Quixote, so we still had to change something in the revised and revised edition. In fact, b 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 much has appeared that we felt it necessary to give this edition a new name. On the other hand, although we use new words, the concept remains the same. We want to change your perception of 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 dominated in those days. Since then, we have fully realized how important collaboration is in strategic situations and why a good strategy must necessarily be an acceptable mix of competition and collaboration (one of us wrote a book on this topic: Competitive Business Collaboration).

The foreword to the first edition of the book began like this: "Strategic thinking is the ability to surpass the opponent, knowing that the opponent is also trying to surpass you." Now we add to these words: it is also the ability to find ways for cooperation, even if others are guided only by their own interests, and not selflessness. It is the ability to convince others (and even yourself) to do what you promise. It 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 book The Art of Strategy reflects this more mature and wiser point of view. But there is also continuity. While we offer more real-life stories in the 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 when traveling on business, offering "seven steps to assured strategic success." The situations you will encounter will be so varied that you will achieve better results by knowing some general strategy principles and adapting them to the strategy games you play.

Businesses and corporations must develop effective competitive strategies to survive, and find opportunities for collaboration to "make the pie bigger." Politicians must come up with campaign strategies to be elected and legislative strategies to make their visions a reality. Football coaches develop strategies that players must follow on the pitch. Parents who are trying to get good behavior from their children must also become amateur strategists - children are already great experts in this matter.

Effective strategic thinking in such diverse contexts is still a true art. Nevertheless, in essence, it boils down to a number of basic principles from the field of the new science of strategy - game theory. In writing this book, we proceeded from the premise that knowledge of these principles will enable readers of different educational levels and representatives of different professions to become more effective strategists.

Some people doubt whether it is possible to apply logic and science to the world, because people behave irrationally in it. But it turned out that the chaos of this world has its own system. We have used some of the most valuable recent advances in behavioral game theory, which takes human psychology and bias into account, thereby incorporating the social factor into game theory. As a result, game theory allows us to get much more meaningful results by studying people as they are, and not as we would like to see them. All of these ideas are analyzed in this book.

Game theory is a relatively young science, just over seventy years old, yet it has already provided a lot of useful information at the disposal of practicing strategists. But like all other sciences, game theory is too overloaded with technical terminology and mathematical calculations. These are undeniably important tools for scientific research, but they limit the number of people who can understand the basic concepts of game theory exclusively to experts in this field. The main motivation for writing Strategic Thinking was our belief that game theory is too interesting and important to be limited to academic journals. The basic concepts of this theory can be useful in many areas, including business, politics, sports, and even everyday social interaction. This is why we have formulated the most important concepts of game theory in a more understandable language and replaced purely theoretical reasoning with real-life examples.