July 21: Game theoretic models

Dennis Yao, Lawrence E. Fouraker Professor of Business Administration, Harvard Business School

Link for synchronous sessions: https://hbs.zoom.us/j/97071216335?pwd=MUZRMFB0L2xXUDRxdU9nSHVMNWtYQT09

Meeting ID: 970 7121 6335

Password: tom

This session focuses on models of strategic interactions which are analyzed using game theory. Modeling and analyzing such interactions can be quite challenging when each participant is believed to account for the other participants’ anticipated actions. Three examples are used to illustrate how game-theoretic models work and how they are built. The first example is a simple bimatrix game-theoretic model of the use of a price protection guarantee. The second is an examination of the introduction of frequent flyer programs. The third, which will be the central focus of the synchronous discussion, involves the sale of ideas.

The excerpt from the Dixit , Skeath, and McAdams (2021) provides an overview of the basic types of game-theoretic models and underlying terminology and key assumptions. This reading is a useful orientation for those who have had limited exposure to game-theoretic models and a nice review for those who are familiar with this type of modeling. It should be read or skimmed first.

The video provides a brief introduction to game-theoretic models using the price protection guarantee example (slides 7-11). Example 2 on frequent flyer programs is described in the video (see slides 12-13) and should be thought about prior to the synchronous session. Finally, read Anton and Yao (1994) for a treatment of the sale of ideas problem (slides 14-18).

Required Video and Readings

Dixit, A., S. Skeath and D. McAdams, “How to Think about Strategic Games” (excerpt) in Games of Strategy, 5th edition, 2021, pp. 18-36. (a review for those not very familiar with game theory models). (Link)

Yao, D., Introduction to Game-Theoretic Models (video and slides), July 2023. (See below.)

Anton, J. and D. Yao, “Expropriation and Inventions: Appropriable Rents in the Absence of Property Rights,” American Economic Review, 1994, pp. 190-209. (Link)