Archive for the 'Game theory' Category

Strategy vs. Tactics

Published
by
peter
on 2010-07-23
in Decision theory, Game theory, History, Intelligence and Military strategy
. Closed

What is the difference between strategy and tactics?  In my experience, many people cannot tell the difference, and/or speak as if they conflate the two. Personally, I have never had difficulty telling them apart.

The 18th-century British naval definition was that tactics are for when you can see the enemy’s ships, and strategies are for when you cannot.  When you can see the enemies ships there are still important unknown variables, but you should know how many ships there are, where they are located, and (within some degree of accuracy) what hostile actions they are capable of.  If you are close enough to identify the particular enemy ships that you can see, you may also know then the identities of their captains.  With knowledge of past engagements, you may thus be able to estimate the intentions, the likely behaviors, and the fighting will of the ships’ crews.   None of these variables are known when the ships lay beyond the horizon.

Thus, tactics describe your possible actions when you know who the other stakeholders are in the situation you are in, and you have accurate (although not necessarily precise) information about their capabilities, goals, preferences, and intentions.   To the extent that such knowledge is missing is the extent to which reasoning about potential actions becomes strategic rather than tactical.  These distinctions are usually quite clear in marketing contexts.  For instance, licking envelopes for a client’s direct marketing campaign is not strategic consultancy, nor is finding, cleaning, verifying, and compiling the addresses needed by the client to put on the envelopes. (This is not to say that either task can be done well without expertise and experience.) Advising a client to embark on a direct marketing campaign rather than (say) a television ad campaign is closer to strategic consultancy, although in some contexts it may be mere tactics. Determining ahead of time which segments of the potential customer population should be targeted with an advertising campaign is definitely strategic, as is deciding whether or not to enter (or stay) in the market.

The key difference between the two is that articulating a strategy requires taking a view on the values of significant uncertain variables, whereas articulating a tactic generally does not.

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Complex Decisions

Published
by
peter
on 2010-06-27
in Decision theory, Economics, Forecasting, Game theory, Joint-Action Society, Market planning, Military strategy, Planning, Project Management and Team working
. Closed

Most real-world business decisions are considerably more complex than the examples presented by academics in decision theory and game theory. What makes some decisions more complex than others? Here I list some features, not all of which are present in all decision situations.

Continue reading ‘Complex Decisions’

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Metrosexual competition

Published
by
peter
on 2010-03-24
in Corporate culture, Economics, Game theory, Marketing strategy, Team working and Telecommunications
. Closed

Writing about the macho world of pure mathematics (at least, in my experience, in analysis and group theory, less so in category theory and number theory, for example), led me to think that some academic disciplines seem hyper-competitive:  physics, philosophy and mainstream economics come to mind.  A problem for economics is that the domain of the discipline includes the study of competition, and the macho, hyper-competitive nature of academic economists has led them, I believe, astray in their thinking about the marketplace competition they claim to be studying.  They have assumed that their own nasty, bullying, dog-eat-dog world is a good model for the world of business.

If business were truly the self-interested, take-no-prisoners world of competition described in economics textbooks and assumed in mainstream economics, our lives would all be very different.  Fortunately, our world is mostly not like this.   One example is in telecommunications where companies compete and collaborate with each other at the same time, and often through the same business units.  For instance, British Telecommunications and Vodafone are competitors (both directly in the same product categories and indirectly through partial substitutes such as fixed and mobile services), and collaborators, through the legally-required and commercially-sensible inter-connections of their respective networks.  Indeed, for many years, each company was the other company’s largest customer, since the inter-connection of their networks means each company completes calls that originate on the other’s network; thus each company receives payments from the other.  Do you seek to drive your main competitor out of business when that competitor is also your largest customer?   Would you do this, as stupid as it seems, knowing that your competitor could retaliate (perhaps pre-emptively!) by disconnecting your network or reducing the quality of your calls that interconnect?  No rational business manager would do this, although perhaps an economist might. 

Nor would you destroy your competitors when you and they are sharing physical infrastructure  – co-locating switches in each other’s buildings, for example, or sharing rural cellular base stations, both of which are common in telecommunications.   And, to complicate matters, large corporate customers of telecommunications companies increasingly want direct access to the telco’s own switches, leading to very porous boundaries between companies and their suppliers.   Doctrines of nuclear warfare, such as mutually-assured destruction or iterated prisoners’ dilemma, are better models for this marketplace than the mainstream one-shot utility-maximizing models, in my opinion.

You might protest that telecommunications is a special case, since the product is a networked good – that is, one where a customer’s utility from a particular service may depend on the numbers of other customers also using the service.    However, even for non-networked goods, the fact that business usually involves repeated interactions with the same group of people (and is decidely not a one-shot interaction) leads to more co-operation than is found in an economist’s philosophy.   The empirical studies of hedge funds undertaken by sociologist Donald MacKenzie, for example, showed the great extent to which hedge fund managers rely in their investment decisions on information they receive from their competitors.  Because everyone hopes to come to work tomorrow and the day after, as well as today, there are strong incentives on people not to  mis-use these networks through, for instance, disseminating false or explicitly-self-serving information.  

It’s a dog-help-dog world out there!

Reference:

Iain Hardie and Donald MacKenzie [2007]:  Assembling an economic actor: the agencement of a hedge fund. The Sociological Review, 55 (1): 57-80.

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Argumentation in public health policy

Published
by
peter
on 2009-08-03
in Argumentation, Consumer Behaviour, Culture, Decision theory, Game theory, Intelligence and Science
. Closed

While on the subject of public health policy making under conditions of ignorance, linguist Louise Cummings has recently published an interesting article about the logical fallacies used in the UK debate about possible human variants of mad-cow disease just over a decade ago (Cummings 2009).   Two fallacies were common in the scientific and public debates of the time (italics in orginal):

An Argument from Ignorance:

FROM: There is no evidence that BSE in cattle causes CJD in humans.
CONCLUDE:  BSE in cattle does not cause CJD in humans.

An Argument from Analogy:

FROM:  BSE is similar to scrapie in certain respects.
AND: Scrapie has not transmitted to humans.
CONCLUDE:   BSE will not transmit to humans.

Cummings argues that such arguments were justified for science policy, since the two presumptive conclusions adopted acted to guide the direction and prioritisation of subsequent scientific research efforts.  These presumptive conclusions did so despite both being defeasible, and despite, in fact, both being subsequently defeated by the scientific research they invoked.   This is a very interesting viewpoint, with much to commend it as a way to construe (and to reconstrue) the dynamics of scientific epistemology using argumentation.  It would be nice to combine such an approach with Marcello Pera’s 3-person model of scientific progress (Pera 1994), the persons being:  the Investigator, the Scientific Community, and Nature.

Some might be tempted to also believe that these arguments were justified in public health policy terms – for example,  in calming a nervous public over fears regarding possible BSE in humans.   However, because British public policy makers did in fact do just this and because the presumptive conclusions were subsequently defeated (ie, shown to be false), the long-term effect has been to make the great British public extremely suspicious of any similar official pronouncements.   The rise in parents refusing the triple MMR vaccine for their children is a direct consequence of the false assurances we were given by British health ministers about the safety of eating beef.   An argumentation-based  theory of dynamic epistemology in public policy would therefore need to include some game theory.    There’s also a close connection to be made to the analysis of the effects of propaganda and counter-propaganda (as in George 1959), and of intelligence and counter-intelligence.

References:

Louise Cummings [2009]: Emerging infectious diseases: coping with uncertainty.  Argumentation, 23 (2): 171-188.

Alexander L. George [1959]: Propaganda Analysis:  A Study of Inferences Made from Nazi Propaganda in World War II.  (Evanston, IL, USA: Row, Peterson and Company).

Marcello Pera [1994]: The Discourses of Science. (Chicago, IL, USA: University of Chicago Press).

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The network is the consumer

Published
by
peter
on 2008-03-24
in Advertising, Consumer Behaviour, Culture, Decision theory, Economics, Game theory, Joint-Action Society, Market planning and Marketing strategy
. Closed

Different Network Topologies Economists use the term network good to refer to a product or service where one user’s utility depends, at least partly, on the utility received by other users. A fax machine is an example, since being the sole owner of fax is of little value to anyone; only when others in your business network also own fax machines does owning one provide value to you. Thus, a rational consumer would determine his or her preferences for such a good only AFTER learning the preferences of others.   This runs counter to the standard model of decisions in economic decision theory, where consumers come to a purchase decision with their preferences pre-installed; for network goods, the preferences of rational consumers are formed instead in the course of the decision process itself, not determined beforehand.   Preferences are emergent phenomena, in the jargon of complex systems.

What I find interesting as a marketer is that ALL products and services have a network-good component. Even so-called commodities, such as natural resources or telecommunications bandwidth, can be subject to fashion and peer-group pressure in their demand.  You can’t get fired for buying IBM, was the old saying.   Sellers of so-called commodities such as coal or bauxite know that the buyers make their decisions, at least in part, on the basis of what other large buyers are deciding.  Lest any mainstream economist reading this disparage such consumer behaviour, note that in an environment of great uncertainty or instability, it can be perfectly rational to follow the crowd when making purchase decisions, since a group may have access to information that any one buyer does not know.  If you are buying coal from Australia for your steel plant in Japan, and you learn that your competitors are switching to buying coal from Brazil, then there could be good reasons for this; as they are your competitors, it may be difficult for you to discover what these good reasons are, and so imitation may be your most rational strategic response.

For any product and service with a network component, even the humblest, there are deep implications for marketing strategies and tactics.  For example, advertising may not merely provide information to potential consumers about the product and its features.  It can also assist potential consumers to infer the likely preferences of other consumers, and so to determine their own preferences. If an advertisement appeals to people like me, or people to whom I aspire to be like, then I can infer from this that those other people are likely to prefer the product being advertized, and thus I can determine my own preferences for it. Similarly, if the advertisement appeals to people I don’t aspire to be like, then I can infer from this that I won’t be subject to peer pressure or fashion trends, and can determine my preferences accordingly.

For several decades, the prevailing social paradigm to describe modern, western society has been that of The Information Society, and so, for example, advertising has been seen by many people primarily as a form of information transmission.  But, in my opinion, we in the west are entering an era where a different prevailing paradigm is appropriate, perhaps best called The Joint-Action Society;  advertising then is also assisting consumers to co-ordinate their preferences and their decisions.    I’ll talk more about the Joint-Action Society in a future post.

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