Schelling's Game Theory: How to Make Decisions

By Robert V. Dodge | Go to book overview
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A strategic move is one that influences another’s choice in a way favorable to oneself by affecting the other’s expectations about how you will behave. Strategies are plans that require implementation. The strategies of commitments, threats, promises, and warnings need to be executed in ways that make them useful. This chapter looks at tactics used for making strategies effective, both personal strategies and those Schelling advocated during the Cold War that remain politically relevant.

Effective tactics often involve a voluntary but irreversible sacrifice of freedom of choice. It is a paradox, Schelling points out, that a person’s ability to constrain or control his adversary may depend on the power to bind oneself. Weakness may be strength. Burning bridges may undo an opponent. The essential point is that a person’s or player’s ability to remove all of his options in a situation gives him the upper hand in certain encounters. When Xenophon backed his army against a gully to fight the massive army of ancient Persians, he removed all options for his forces other than to fight to victory. This was a tactic to create a credible commitment.

Influencing Another’s Expectations

A story from the Battle of Waterloo offers an excellent example of influencing other’s expectations of one’s own future behavior and thus influencing others’ choices, that is, using tactics to make an effective strategic move. Schelling wrote, “Bargaining power has also been described as the power to fool and bluff.”1 Online notes from the Yale School of Management tell a story of such manipulation of others’ choices by fooling and bluff being successfully used as follows:

The greatest investor of all at exploiting market over-reaction was
Nathan Rothschild, the London banker. He was known to have the most
sophisticated information network in Europe, and everyone knew he
would have the latest news about the outcome of the battle of Waterloo.
Would he buy or sell Bank of England securities? One day Rothschild
came out and quietly sold. Suddenly, astute investors got wind of this,


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