Strategic Decisions

1
Strategic Decisions

• Class 5 Part I
• Strategic Moves
• Manipulating the Game

2
Intuition into Strategic Moves from the Movies

• Princess Bride
• Dread Pirate Robin game of wits
• The Godfather
• Michael Corleone with brother-in-law, Carlo
• Point Break
• Climactic parachute scene
• Common thread?

3
Strategic Moves Manipulating the Game

• Influence over some essential feature of a game
  often translates into influence over the outcome
  if skillfully used
• Do you have influence over
• Order of moves?
• Information or beliefs?
• Strategies that are available?
• Payoffs or beliefs about them?

4
Office Politics Again

• Office Politics Game
• Why power gained by agenda control?
• Key assumptions? knowing preferences
  sophistication of players
• Agenda Control Games
• How to present alternatives to move someone else
  (supervisor, Board/CEO, ) in ones desired
  direction?

5
Manipulating Information

• Asymmetric (private) info creates opportunities
  to manipulate game
• Am I more informed or less informed?
• Less informed
• Manipulate to extract key information
• Screening Incentives
• More informed
• Manipulate beliefs w/threats-promises
• Signaling
• Credibility

6
Moves to Extract Information

• Firms-Individuals often need interact with
  someone who holds key unobservable information
  (private information)
• Examples?
• Screens Incentives filtering devices so that
  individuals voluntarily reveal accurate
  information
• Examples?
• Insurance
• Education
• Car Sales person
• Car buyer
• How to provide incentive for truthful
  information?
• Attach a cost
• Must filter right things

7
Examples of Extracting Information through
Organization Compensation Structures?

• Franchising
• Partnerships
• Salary-Bonus Packages
• Commission schemes
• HMOs
• All represent some strategic move or innovation
  in business structure to take elicit privately
  held information

8
Moves to Reveal Key Information

• Hold information advantage over other players
  Keep secret or reveal?
• How to provide credible signals?
• What types of things signaled?
• personal trait (quality attribute, personal
  attribute, willingness to pay) that separates
  from crowd)

9
Examples of Credible Signals?

• Signal Non-lemon v. Lemon?
• Examples of methods?
• Inspections warranties reputation
• How to build credibility?
• Some people great actors
• More commonly, must build credibility through
  reputation or commitment ()

10
Addition by Subtraction Changing Available Moves

• Cortezs Famous Strategic Move?
• What did he do?
• What element of the game changed?
• (Plus, possible information manipulation, people
  dont know how to respond to crazy moves)
• Similar Moves in Other Settings?
• Delegation -- Send agent with restricted powers
• Salami Tactics -- Whittle the other person down
  by small increments
• Price matching 3rd-Party Contracts
• Burning Money with Sunk Costs

11
Countering Strategic Moves?

• Knowledge is power
• Know common tactics
• Countering attempts to gain info?
• Signal-Jamming, e.g. vagueness,
• Countering manipulation of order?
• Amendments, coalitions,
• Countering manipulation of options ?
• Expand Options, e.g., Exclude Agents-Non-decision
  makers
• Make commitments to reduce salami tactics