Game Theory

I was at Chapter’s a few weeks ago, and saw on the back wall a sign promoting the “Indigo MBA”. What a hokey marketing promo I thought, but ended up buying two great books.

One is called The Art of Strategy: A Game Theorist’s Guide to Success in Business and in Life by Dixit and Nalebuff. It is an update of a 1991 book, called Thinking Strategically.

One of the exercises in this very readable book is based on the principle of backwards reasoning. Figure out the winning end position, and work backwards to what you should do now. Obvious in principle, but not always in practice. The example they use is from season 4 of Survivor. Two teams face each other, with 21 flags between them. At each turn, you must take one, two or three flags. No more and no less. The winner is the teAm that takes the last flag.

If you get to go first, how many flags should you take on your first turn to guarantee a win, and what is your strategy for every subsequent turn?

It is a fun problem, and really illustrates the usefulness of this book. (Of course, a proper game theorist would not promote this book, but I also like to believe in what Joseph Thornley has called the “gift economy.”)

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