Wednesday, March 30, 2011

Class #18 Highlights

A Cake Cutting Problem?

In this class, we developed a framework for assessing bargaining situations. Bargaining is complex and messy. Moreover, the answers provided by game theory are often frustratingly sensitive to the exact form of the game tree. What is needed is a toolkit for assessing outcomes without having to write down the game. Here, we took a page from cooperative game theory.

Class #17 Highlights

The Weakest Link in Cooperation

In this class, we reviewed the results of the OPEC game. The main lesson of this game is to provide practice in achieving cooperation in difficult environments. The two main difficulties in this setting are: (1) lack of observability; and (2) limited tools for punishment and reward. As we saw in GE v Westinghouse, these are common obstacles in many settings.

How do we solve this problem?

Judo Highlights

Wilkes-Barre on a threatening day
An Unpromising Landscape?

The judo class was a capstone for the ideas of the first half of the course. In strategy, the easy thing is to identify promising business landscapes. The problem is that others can identify these same situations, and the space quickly becomes crowded. In strategy, being successful when you have a competitive advantage, while not easy, is much more promising than situations where you have no such advantage. So how do you find opportunities in unpromising settings where you have no advantage? (One good thing about such settings is that others are probably not looking there.)

Monday, March 21, 2011

Final Projects Clearinghouse

Farmer's Market
A Potato Clearinghouse?

To help mitigate the coordination problem in project selection, please use the comment area below to report your final project. The rules for this are as follows: (1) If you chose topic X for the mid-semester project, then you own that topic and are free to pursue it for the final. (2) Any new topic Y is owned by the first team to make a comment on the website. No other team can claim this topic.
My goal is to avoid the level of topic duplication we saw in the mid-semester projects.

OPEC Round 9/Cold Fusion Round 10

Solar Energy

Round 9 Results:
Market A: Price $26.20, Q = 68,259
Market B: Price $26.97, Q = 68,153
Cold Fusion Coin Flip = Heads. So cold fusion is invented prior to round 10. This means that Round 9 was the last round of the game.
The P&L results of the OPEC are posted on the P&L spreadsheet. I've also posted the results for the Judo game. I notice that some spectrum results are still not posted. Please add these unless the payoff was zero for this game.

Thursday, March 17, 2011

OPEC Round 8

A: Price 26.23 Q = 68,182
B: Price 26.00 Q = 69,356

Please note that the results for the first round of cold fusion will be reported on Friday. There is a 10% chance of invention. Following this, I will sim out all the rest of the results of the game assuming no cooperation for the remaining periods and report final results.

Wednesday, March 16, 2011

Mid-Term Project Due Date

Mid-term projects are due by 1159pm Hawaii time on Weds March 30, 2011. Please submit these either as hardcopies (recommended if you use color) or pdf. Please note, if submitted pdf, I only have a BW printer, so any color stuff will be lost. Make sure that graphs etc look good in BW.

Tuesday, March 15, 2011


In my efforts at continuous quality improvement, I have gone over the mid-semester evaluation forms with the class rep. Overall, you seem to like the class (with one exception) but there are always ways to make it better. Here is a list of the upgrades so far:

1. Change the channel. Some of you complained that the run time for the videos was too long for the information provided. Therefore, all new videos now come with exec summaries for busy people who do not have time to watch.

2. Dates not class numbers: Some of you complained that using class numbers to refer to classes in the syllabus and in my discussion of past concepts is confusing. Therefore, I've now retrofitted the syllabus with dates. I've also tied the take aways on the blog (which are listed by class number) to the syllabus, so that you can more readily correlate the class number with the date. If you turn to the syllabus, you'll now see hyperlinks to the takeways to make this connection easier.

3. Too many problem sets: Several of you complained about the workload of the course, particularly the problem sets. Apparently the three problem sets required over the first 8 weeks of class were unduly burdensome. You also wondered what the point of the problem sets was. The point of the problem sets is to get you to see the math behind the games (something that several of you wanted more of). Nonetheless, I aim to please. Since problem sets are a pain for me to grade and you don't want them...they're gone. PS3 is the last problem set for the course.

4. Why do I have to post the results? This is the first year that I had you post the results of experiments. This change in the course, which was suggested by last year's MBAs, has received mixed reviews. Several of you thought that you really shouldn't have to post your own results and that I should take care of all the logistics. When I handled all scoring, I would send numerous nag emails to remind you to send me the results of experiments so I could input them. This process just ends up wasting (mostly my) time though some teams complained about the nag emails. You still have to send me an email with the results (which is about the same as inputting them to the online spreadsheet), while I have to nag you and then transcribe the results from the email. I'm not changing this since it really won't save you any time. 

Now for the one exception: One of you wrote that the games I designed for the class were "stupid and useless." You were clearly very unhappy in the course. Since the games are the main things I have to offer, I'm happy to give you a refund as best I can. I don't want dissatisfied customers. Therefore, I'll sign whatever forms are needed to allow you to exit the course. Please come see me offline.

For the record, I believe that the games are some of the most effective tools for learning about strategy and leadership you'll encounter as an MBA.

Please note that if any of these upgrades are, in fact, perceived as downgrades, if I hear enough dissension, I'll switch back.

I'll post more as I come up with additional upgrades. I'll also discuss the results of the evals in more detail in class #17 (3/28/11)

OPEC Period 7

Market A:
Price: $25.19 Q = 68,734
Market B:
Price: $42.33 Q = 64,075

Sunday, March 13, 2011

OPEC Period 6

And for those too busy for the video, here's the executive summary:

A: Price = 26.34, Q = 69,647
B: Price = 38.22, Q = 65,091

Friday, March 11, 2011

OPEC Round 5

No time for video on this go. Aidan is too busy with his new Pokemon Black game. Here are the results:

Market A: $25.33 with Q = 68,269
Market B: 45.31 with Q = 61,204

The moderated market seems to have settled into a happy equilibrium while market A remains as dysfunctional as always.

Wednesday, March 9, 2011


As it is halfway through the course, now is a great time to get feedback. While the mid-semester evals provide useful feedback for the course itself, I wanted to get a little feedback on the blog and other electronic aspects of the course. What do you like? What would you like to see more of? Less of? Leave me some comments to let me know. If you think everything is great, feel free to leave me a comment saying that. If not, tell me what to improve.


Cal Memorial Stadium
Getting Ready for the Second Half

We're at the halfway mark in game theory. It's time to take stock of the main lessons learned.

1. Outward thinking

The goal of the class is to change how you think, to get you to view the world through an interactive/game theory lens. Outward thinking is the shorthand used to describe this process. It means analyzing situations by anticipating the rival's response and then "changing the game" with this in mind to find a successful outcome. Outward thinking sheds light on new opportunities (like how to make money when you have no form of competitive advantage whatsoever) as well as new ways to use the tools you've already developed (like using an option to stifle competition).

Class 14 Take Aways

Summer Lovin'
Small is Beautiful

This class completed our segment on game theory in practice. It also marks the end of the first half of the course. In this unit, we learned how a "small is beautiful" strategy can allow an entrant to prosper even if it lacks any form of competitive advantage whatsoever. The key is the correct marketing mix---targeting only a subsegment of consumers and charging prices much lower than the incumbent. The strategy works because the incumbent lacks the flexibility to price discriminate between targeted and untargeted customers. It's another example of how outward thinking can create new uses for standard tools (like targeting).

Class Presentation Times

Class 15 (March 14th)
2. Max Payoff
3. Getting’ Nashty
4. Moral Hazards
5. F is a Big Deal
6. Class Reps
7. Yankees 27
Class 16 (March 16th)
1. Seagull
2. Mrs. Bento
3. Don’t Hate the Playa
4. Playadize
5. Free Rider
6. Money on the Night Stand
7. What Should I Do
8. Free Agents


The judo spreadsheet is located at

Please input your P&L for this game on the P&L spreadsheet. All P&L numbers for this game should be your dollar profits divided by 10. 

Syllabus - Revised Topic Order

As I mentioned, the syllabus is slightly rejiggered for the timing of OPEC. This class we will cover Judo (formerly class 19). I've also moved the timing and identity of the guest speaker. My friend from Deloitte is unable to make it, so I've added a guest speaker from Yahoo, an ethnographer named Elizabeth Churchill. She will be speaking during class #19 on how social motivations affect market design. Social is obviously a huge deal in online these days, so her talk should be really useful for those of you thinking about startups with a social dimension (i.e. all of you contemplating tech startups).

Tuesday, March 8, 2011

Class 13 Take Aways

On Deck
The Practice of Game Theory

This class was all about translating the ideas of game theory into practice. In GE v Westinghouse, we saw how GE was able to use simple measures to create price discipline in the market. Specifically, it made prices transparent both in its price book and in disclosing prices and orders. The idea here is to make cheating easy to detect.

OPEC Period 4 Results

Too busy for a video today, so the results are in boring format:

Market A:
Price: 25.76
Quantity: 70,646

The punishment period apparently continues for Market A

Market B:
Price: 43.13
Quantity: 62,660

Market B seems to have sorted things out and is back to cooperating (to some extent)

Wednesday, March 2, 2011

Mid Semester Topics Clearinghouse

A Coordination Game?

Coordination is a pretty good thing. In an effort to facilitate coordination, this blog entry represents a clearinghouse for mid-semester project topics. I'll list topics for a couple of teams. Please add your team's topic in the comment section below.

Money on the Nightstand: NFL lockout
Mrs. Bento: Amazon's entry into streaming video

Class 12 Take Aways

The Better Angels of Our Nature?

Why do organizations grow bureaucratic and rule-bound as they scale up? In this class, we saw how game theory can explain this phenomenon. This class was all about impediments to achieving cooperation in the face of social dilemmas. Here, we highlighted the social aspect of solving social dilemmas. In a small enough society, punishment by ostracism can deter bad behavior. The idea is that, while interactions with any particular individual in a society might be rare, if individuals talk, then a society level punishment might be sustained in the face of bad behavior.