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Game Theory

Opportunity Cost: What It Is and How to Account for It

  Opportunity cost is the value of the best alternative that you miss out on as a result of choosing a different option. For example, if a person chose to invest in a certain venture, their opportunity cost is the money they could have made by investing in a different venture, and namely in the …

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Precommitment: Burning Bridges as a Strategic Decision

  Precommitment is a strategy where you intentionally take actions which limit your future options, in order to enforce your commitment to a particular course of action and make your threats appear more credible to others. Precommitment can be a valuable strategy to apply in many areas of life. As such, in the following article …

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Dominant and Dominated Strategies: What They Are and Why They’re Important

  Strategic dominance is a state in game theory that occurs when one strategy that a player can use leads to better outcomes for them than all the other possible strategies that they can use, regardless of which strategies their opponents use. Accordingly, a strategy is a dominant strategy if choosing it leads a player to …

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Brinkmanship: Walking On the Edge as a Strategic Decision

  Brinkmanship is a strategy that involves pushing volatile engagements to the brink of active conflict, with the goal of achieving a positive outcome for yourself. For example, in the context of an important negotiation, brinkmanship could involve telling the opposing party that if they won’t agree to all your demands right now, then you’ll …

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The Strategic Advantage of Being a Small Fish

  Roland, Harry, and Billy are three outlaws who recently arrived at the town of Deadwood. After realizing there’s not enough room for the three of them in this town, they decide to meet at the town center at noon, and duel to the death. The rules of the duel are simple: each one, in …

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The Money Envelope: How an Opponent’s Choices Reveal Their Position

  In game theory, a smart player accounts for the fact that the choices that other players make reveal a lot about their position. This article will show you how this concept works and how you can take advantage of it, by looking at the example of the Money Envelope game.   The setting Richard and …

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Look Forward, Reason Backward: A Primary Principle of Strategic Thinking

One of the basic principles in game theory is that you should look forward and reason back. Essentially, this means that before making a move, you should consider all the possible moves that you and the other players can make, together with the possible outcomes that these moves lead to. Then, consider how desirable each outcome …

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Follow the Follower: A Lesson in Strategy from Sailboat Racing

  “Sailboat racing offers the chance to observe an interesting reversal of a ‘follow the leader’ strategy… The leader imitates the follower even when the follower is clearly pursuing a poor strategy. Why? Because in sailboat racing (unlike ballroom dancing) close doesn’t count; only winning matters. If you have the lead, the surest way to …

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