Question

The order of play tends to matter in sequential games where rivals must predict best reply-responses and counter-responses in order to achieve a desired payoff. Discuss an instance in which you or your firm used game theory and explain why the relationship between the players was a strategic one. Did the use of a credible threat or commitment affect the outcome? Were there any first-mover of fast-second strategies used?

Answer 1

(You can read up more by googling the bolded terms)

Yes, the classic Prisoner's Dilemna game when delegating the work for a Teacher's Day celebration. Characteristic of the Prisoner's dilemna is that players pursue their dominant strategy and the game comes to Nash equilibrium. However the outcome is an undersirable "low-level equilibrium" situation that could have been avoided through some sort of cooperative agreement (collusion) that is realistically believable (i.e. enforceable)

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Suppose there are 6 of us, debating on what to do. Somebody - say NP - suggests an elaborate powerpoint presentation to express our gratitude - an idea welcomed by everybody. Problem is, this person is "unwell" so is "unable" to put in the work themselves.

This characterizes the general situation with many group projects - in school, university, work, social work and all such spheres. Because each person can benefit from being a free rider (no individual cost yet they enjoy the credit and the classroom entertainment) shirking is the dominant strategy for each person strategy. The result is that everybody shirks and you have either a substandard presentation or no presentation at all - because everybody thinks someone else will do it.

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This is especially true if there is another person - say SG - in the group who has a historical record of making good presentations. Removing responsibility from themself under the pretext of "illness" was a subtle way of leveraging moral liability (on NP's part) to shift the burden of responsibility to SG.

And if SG says no then SG's the bad person - because not only they didn't do it when they could have (SG may be humble on principle about appearing "too busy"), but now everybody else is justified in turning down the responsibility.

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SG's solution? Turns rogue and doesn't turn on the microphone. When despite repeated requests the microphone isn't turned on and there's no explanation, this is a very credible threat (but is really an experienced person's accurate premonition) that not only SG but nobody else would do it either; by so harshly absolving themself of responsibility, it is signalled by SG that everybody else may do so as well following the principle of social proof.

The rest followed like the story of The Dark Knight. The masses who had been fragmented in their pursuit of individual incentives joined in their hatred of SG and decided to make a great presentation partly to rub SG's nose in it; thus emerged the necessary medicine for the Prisoner's Dilemna situation viz. collusion.

Now once the project is seriously underway (others have made a proper personal committment to it i.e. the collusion is believable or enforceable) SG had the option to watch from a distance or join the work (after the due "apologies" of course ;))

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