Sloan School of Management
Massachusetts Institute of Technology
Game Theory for Strategic Advantage
DRAFT Syllabus for January 2025
LOGISTICS
Professors: Alessandro Bonatti (
[email protected]) E62-515
Ellen Muir (
[email protected]) E62-512
5
Course Admin: Shannon McDonald ([email protected]) E62-511A
ft 2
TA: TBA
Meeting:
ra 0 January 10-11, 2025
D y2
OVERVIEW
The most difficult strategic situations facing managers involve both competitive and
ar
collaborative dynamics and require a complex evaluation of the motives and potential actions of
others. This course leverages game theory—the analysis of multi-person decision problems—
nu
to develop interactive thinking in strategic environments.
Ja
LEARNING GOALS
The course emphasizes game four-theoretic tools for acquiring a competitive advantage:
1. Predicting your opponents’ behavior.
2. Influencing your opponents’ behavior.
3. Enabling or deterring your opponents’ retaliation.
4. Learning to be unpredictable yourself.
APPROACH
The important ideas of game theory are best mastered not at the level of some abstract
theory but in the context of real examples. For this reason, we will play and analyze games that
arise frequently in business settings and discuss numerous real-world examples.
To complement the formal analysis, we will use an interactive approach that includes real-
world cases and in-class live games.
15.741 Game Theory for Strategic Advantage January 2025
GRADING
The course is graded as Pass / D / Fail. Full participation in class discussion, the live in-
class games, and submission of a short reflection page after the course ensure a passing grade.
PREREQUISITE
Game theory is applied in many other courses offered at Sloan. A single course could not
suffice to study even a fraction of these applications in any depth. While the course is designed
to complement Sloan’s other economics and strategy offerings, it is self-contained. Therefore,
there are no prerequisites beyond the core (SF / EMBA) economics courses.
PRE-READS
Background readings (articles and cases) are available on Canvas.
5
ASSIGNMENT: REFLECTION EXERCISE
ft 2
The assignment for the course is a short (1-2 page) memo where you reflect on how the strategic
ra 0
tools that we discussed in class could impact a real-world situation you were involved in.
D y2
1. First, think back at an intensely competitive (or strategically important) scenario you
were part in the recent past.
ar
• Who were the relevant players? It is critical that you identify more than one.
• Did you correctly predict the moves of all relevant players in the game?
nu
• Did your own moves influence their behavior? If so, how?
• What were your goals and aspirations? Do you feel you achieved them?
Ja
2. Next, think forward: based on what you learned in this class, what (if anything) will
you do differently in the future?
This assignment is due on January 24th, 2025.
ORGANIZATION
The course is organized in four half-day modules. Each module is centered on a specific
game to be played in class, with a primary (though not exclusive) focus on one of the four tools
above. Class time within each module is split evenly among (A) playing the game, (B)
introducing the relevant game-theoretic framework, and (C) applying the game’s insights to real-
world cases.
2
15.741 Game Theory for Strategic Advantage January 2025
MODULES (DETAILS)
1. Predicting your opponents’ behavior: interactive decisions are best faced by putting
yourself into your opponent’s shoes. This way of confronting business problems helps
players avoid cognitive and behavioral biases (e.g., overconfidence, bandwagon effects)
that can hinder competitive efforts. We will discuss what it means for a player to be
rational and apply the concepts to investing and cascades.
2. Steering your opponents’ behavior: with the correct understanding of strategic incentives
in any game, any player can try to steer their opponents’ behavior. This module
introduces several types of “strategic moves”—actions that do not yield a direct benefit
but induce your opponent into taking more favorable actions. As a byproduct, the module
helps evaluate the credibility of certain threats and promises made by competitors.
5
3. Enabling and deterring retaliation: leveraging game theory when entering a new market
ft 2
involves engineering the game to be played once you are in it. This module provides a
foundation to choose which games to play. Sometimes this requires forcing your
ra 0
competitors to fold; sometimes enabling them to retaliate leads to long-run cooperation.
D y2
Applications include instances of “judo economics” and of the Innovator’s Dilemma,
such as product development, market entry, and price wars.
ar
4. Becoming unpredictable: achieving favorable outcomes in negotiations often requires
outlasting your opponent in “wars of attrition.” Sometimes, it may require adopting
nu
seemingly irrational actions (e.g., “brinkmanship”). We will discuss applications to entry
deterrence, negotiations, and international relations. This module also provides a
foundation to choose which games to play, and which ones to quit.
Ja
3
15.741 Game Theory for Strategic Advantage January 2025
Course Outline and Readings
Jan. 10 (morning session) Predicting Opponents’ Behavior
Background Reading:
Android vs. iPhone: 15 Years of Innovation Through
Rivalry
https://hbr.org/2008/02/fast-second
Jan. 10 (afternoon session) Influencing Opponents’ Behavior
Background Reading:
5
How Google Took on China – and Lost
ft 2
ra 0 Google Out of China. Stanford GSB Case P-76
D y2
Jan. 11 (morning session) Enabling and Deterring Retaliation
ar
Background Reading:
How Bevi Uses Data to Take on the Beverage Industry
nu
The Time Jeff Bezos Went Thermonuclear on
Diapers.com
Ja
Jan. 11 (afternoon session) Being Unpredictable
Background Reading:
Profits, Politics, and Pipelines: Europe, Russia, and the
Challenge of Nord Stream 2. HBS Case N2-719-060 (A)
'We Haven’t Got but One More Day': The Cuban Missile
Crisis as a Dynamic Chicken Game, by Dixit, McAdams,
and Skeath.
