Presentation is loading. Please wait.

Presentation is loading. Please wait.

Game Theory. Poker Who plays? Do you play the probabilities?

Similar presentations

Presentation on theme: "Game Theory. Poker Who plays? Do you play the probabilities?"— Presentation transcript:

1 Game Theory

2 Poker Who plays? Do you play the probabilities?

3 John von Neumann The best mind of the 20th Century Mathematical genius von Neumann, 25, plays poker, invents game theory. – The odds are meaningless when someone bluffs Von Neumann is a major force in inventing the atomic bomb and the modern computer Two Rand Corporation scientists invent the Prisoners Dilemma game.

4 Game Theory You have to take into consideration the objectives and strategies of the other players. – Not just the probabilities – Not just your own goals and strategies – Your moves depend on their moves.

5 The Prisoners Dilemma In 1950 a conductor on a train to Kiev rehearses for a Tchaikovsky concert. KGB arrests him for subversive activity. KGB arrests Boris Tchaikovsky, a worker, on the streets of Kiev. KGB puts them in separate cells so they cant communicate. KGB offers them both a deal.

6 The Prisoners Dilemma 3 If the conductor rats and Boris doesnt, he gets one year in a gulag and Boris gets 25 years. 3 If the conductor doesnt rat and Boris does, he gets 25 years in a gulag and Boris gets one year.

7 The Prisoners Dilemma 3 If both rat, each gets 10 years. 3 If neither rats, each get three years. 3 The silent auction begins.

8 The Prisoners Dilemma 3 Each serving 10 years, they meet in the gulag, begin talking and discover they ratted on each other. 3 While talking they realize that if each had said nothing, they would only have been in for three years.


10 Boris Conductor RatNot Rat Payoff Matrix Rat Not Rat 10, 10 *1, 25 25, 1 3, 3 * Conductor, Boris

11 Scenario KAAA-TV, on the West Coast, is considering switching from its current prime time (8-11 p.m.) to early prime time (7-10 p.m.). KAAA is #2 in prime time, and because of KBBBs very strong p.m. lead-in to its late news, KAAA is #2 in late news even though its news product is competitive. KBBB is #1 in late fringe also.

12 Scenario KBBB-TV is #1 in prime time and has excellent p.m. network lead-ins to its 11 oclock news, which puts it #1 in the late news race. KBBB is also #1 in late fringe. KCCC-TV is a weak #3 in prime time and late news. It is a network-owned station and will not switch to early prime.


14 Payoff Matrix KBBB KAAA Go No go GoNo Go 4, 2*3, 4 1, 3 2, 1 Assigning weights is the most difficult decision. * KAAA, KBBB

15 KAAAs Payoff Weights 4, 2 = If KAAA switches (go) to early prime and KBBB also switches (go), both gain more revenue from higher ratings for 10-10:30 p.m. late news. KBBB doesnt gain as much as it would if KAAA switches and KBBB doesnt (3,4).

16 KAAAs Payoff Weights 3,4 = If KAAA switches (go) and KBBB doesnt switch (no go), KAAA gains revenue with its :30 p.m. news, but the news is up against KBBBs strong prime and KBBBs late news gets higher ratings than before because KAAA has dropped news from the time period.

17 KAAA Strategies 1,3 = If KAAA doesnt switch (no go) and KBBB switches (go), KAAA loses big because its weaker p.m. prime is up against strong KBBB news which has strong lead-ins and strong late fringe. 2,1 = If KAAA doesnt switch and KBBB doesnt switch, nothing happens, but the outcome isnt as bad as if KAAA doesnt switch and KBBB switches (1,3)

18 KAAA Strategies Adding KAAA go weights (4+3 = 7) shows switching is the best strategy, because its no-go weights (1+2 = 3) are much worse. KBBBs judged weights are the same with either decision (4+1 and 3+2 = 5).

19 KAAA Strategies KAAAs best strategy is to announce its staying with its current schedule, hoping KBBB will switch to gain an advantage and hurt KAAA (1,3). Then, at the last moment, KAAA switches to early prime to gain its maximum outcome (4,2), assuming KBBB stays with its decision to switch. Secrecy is critical.

20 Game Theory See Game Theory- Sales case on

21 Anyone want to buy a $20 bill?

22 The Prisoners Dilemma If the prisoners had been able to communicate, what would have happened? If they had been given a chance to play the game again and again, what would have happened?

23 The Prisoners Dilemma The rules for the game changes when you play repeatedly, as the Rand Corporation scientists discovered. And if the other side gets greedy (which is inevitable), you must use tit-for-tat. You must teach the other side cooperation (to accept three years in the gulag)--to do whats best for both.

24 Co-opetition Customers Complementors Suppliers Competitors Business Ecosystem

25 Co-opetition What are syndicators? What are other TV stations? Strategy: Help Your Competitors Get Rich Remember, Ecosystems Co-evolve. – Wolves and caribou

26 Co-opetition It might be a smart strategic move to change the game and the players. In fact, it might be a smart strategic move to pay someone to compete (co-opetition). – Coke, Pepsi and NutraSweet – Lin, McCaw and Bell South

27 The lessons are: – Know what game youre playing – Know the rules of the game – Play to win-win (cooperate)

Download ppt "Game Theory. Poker Who plays? Do you play the probabilities?"

Similar presentations

Ads by Google