Saturday, March 3, 2012

Book Recommendations ♯3: The Art of Strategy

Game theory is something that has long fascinated me. I suspect there are several reasons for this, two of which spring readily to mind. The first is that the central ideas of game theory are often presented in story-based form. Take the classic prisoners’ dilemma for example. We are introduced to a cast of characters (two prisoners), we are told about some sequence of events in their lives (the crime and subsequent arrest), and how these events force them make strategic decisions (the dilemma). The fact that game theory has room for such stories makes it interesting and creative. The second reason I like game theory is its use of formal models. The stories are the bait, they’re what lure you in initially; the formal models are the hook, they’re what keep you there for the long term. Learning the skills of formal modelling is something that is useful in a number of domains.

For all its fascinating features, game theory can be daunting to the uninitiated. Pick up a standard textbook on game theory, and you are likely to see a bewildering array of symbols, mathematical models, charts, decision trees, and other mathematical paraphernalia. Since math phobia is so common, that’s likely to scare off a lot of people. That’s where today’s book recommendation comes in. The Art of Strategy by Avinash Dixit and Barry Nalebuff provides the most comprehensive, reader-friendly introduction to game theory there is. Certainly other introductory books, aimed at a popular audience, exist, but none of the others I have read — and I have read several — come close to this one.

What Dixit and Nalebuff manage to do in this 400-plus page volume is to be commended. They tell you why game theory is interesting, they cover all the basic concepts of game theory (the nature of strategic interactions, simple modeling of such interactions, the Nash equilibrium concept and mixed strategies), and they provide decent introductions to several of the most interesting applications of game theory (voting, auctions, bargaining, mechanism design). They do this by using interesting examples — both real and fictional — and with a minimal amount of math.

Now, if you want to get more serious about game theory, you’ll have to go elsewhere, but this is definitely a good place to begin. If I have a complaint, it has to do with the general authorial tone that is present throughout the book. It’s hard to put my finger on it exactly, but it feels like the authors are being a little bit too self-satisfied, smug and all-knowing in their explanatory style. As a result, I find they talk down to the reader and make things out to be more simplistic than they really are. That said, I’m willing to tolerate this stylistic foible on the grounds that the content is still interesting, and I definitely think you'll learn a lot by reading this book.

If you want to step up from this book, I'd recommend Dixit's textbook Games of Strategy. I think it's the most straightforward textbook level treatment of the topic, although it's not my personal favourite. I'll talk about that some other time.

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