reading

Thinking Strategically: Book Review

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I finished reading Thinking Strategically by Avinash K. Dixit and Barry J. Nalebuff in March 2010. Subtitled “The Competitive Edge in Business, Politics, and Everyday Life,” Thinking Strategically is an international bestseller and a classic, having been published in 1993. My motivation to read it was because I saw this book listed on numerous forums which listed excellent business books.

The book is organized into three parts, with a total of thirteen chapters. After reading the preface (with the moniker: “Thinking Strategically—Don’t Compete Without It”), the authors explain in the Introduction that the aim of the book is to improve the reader’s “strategy I.Q” while not promising to “solve every question you might have.”

The first chapter sets an excellent tone for the rest of this book; this chapter profiles ten interesting “tales” of strategy. The book leads of with the phenomenon of the “hot hand,” commonly observed by sports fans and sports analysts. In fact, hot hands in such sports as basketball are actually a fallacy, most likely observed because we (humans) have a tendency to focus on streaks of occurrence rather than non-occurrence…

In the first chapter, the authors also explain so-called zero-sum games: one person’s gain is another person’s loss (basketball, football, poker all fit this description). So what isn’t a zero-sum game? The most inviting example is that of the prisoner’s dilemma, where the payoffs of the two participants do not necessarily offset. In part II of the book, the authors have a lengthy chapter entitled “Resolving the Prisoner’s Dilemma” in which they elucidate a few excellent examples (they use OPEC to build the case). The authors explain that participants of a prisoner’s dilemma may try to achieve cooperation, but that there is a large underlying incentive to cheat even if an agreement is made.

The examples in this book are interesting. For example, in Chapter 2 (“Anticipating Your Rival’s Response”), the authors feature the recurring theme in the cartoon strip Peanuts, in which Lucy holds the football and invites Charlie Brown to run up to the ball and kick it. Of course, we all know Lucy’s intentions, but it’s worthwhile to create a decision tree and deduce what Charlie Brown should do (the authors do admit that the story of Charlie Brown is “absurdly simple,” but that this example allows the reader to become familiar with decision trees for more complex situations). Another example in this chapter is the game of chess, in which the players try to envision how their opponent will play a few moves into the future. I found it interesting that the authors pondered about solving chess, something I wrote about when I linked to the Garry Kasparov article, “The Chess and the Computer.”

In the chapter “Strategic Moves,” you’ll learn about unconditional moves (an example of a TV race between United States and Japan is presented), threats and promises (while an unconditional move gives a strategic advantage to a player able to seize the initiative and move first, you can establish a similar strategic advantage through a response rule—either a threat or a promise), warnings and assurances (a warning is when it is in your interest to carry out a threat while an assurance is when it is in your interest to carry out a promise).

Other chapters in the book include “Credible Commitments” (in which you will learn about “apparent irrationality,” contracts, and why it would make sense to burn bridges), “Unpredictability” (in which you will learn about the min-max theorem and the usefulness of surprising others by surprising yourself), “Brinkmanship” (please note that “brinksmanship” is not a word), “Cooperation and Coordination” (with a most interesting case about stock markets and beauty contests: how do they relate?),”The Strategy of Voting” (with considerations about median voting, the so-called “naive voter,” and how it may occasionally behoove to vote for an enemy to see a result you desire), “Bargaining” (with a discussion of handicap system in negotiations), and “Incentives” (an excellent chapter which sets the case for merit-based bonuses in jobs).

I think the best part of this book are the number of examples and the cases at the end of the chapter which reinforce the ideas discussed. Each case has a thorough solution, and so you can definitely learn a lot by reading through these cases. Speaking of cases, the last chapter of the book is entirely devoted to them; there are a total of twenty-three additional cases to go through which further reinforce the concepts covered in the book (again, solutions to the cases are also provided).

Quotes

Some interesting quotes from the book follow.

Setting the tone for the book:

You must recognize that your business rivals, prospective spouse, and even your child are intelligent and purposive people. Their aims often conflict with yours, but they include some potential allies. Your own choice must allow for the conflict, and utilize the cooperation. Such interactive decisions are called strategic, and the plan of action appropriate to them is called a strategy. This book aims to help you think strategically, and then translate these thoughts into action.

On threats and promises:

Is is never advantageous to allow others to threaten you. You could always do what they wanted you to do without the threat. The fact that they can make you worse off if you do not cooperate cannot help, because it limits your available options. But this maxim applies only to allowing threats alone. If the other side can make both promises and threats, then you can both be better off.

How do I know this book is dated? Reference to the Cold War on page 3 of the book:

As the cold war winds won and the world is generally perceived to be a safer place, we hope that the game-theoretic aspects of the arms race and the Cuban missile crisis can be examined for their strategic logic in some detachment from their emotional content.

On De Gaulle’s rejection of friendship:

A compromise in the short term may prove a better strategy over the long haul.

On Khrushchev’s silence:

Khrushchev first denounced Stalin’s purges at the Soviet Communist Party’s 20th Congress. After his dramatic speech, someone in the audience shouted out, asking what Khrushchev had been doing at the time. Khrushchev responded by asking the questioner to please stand up and identify himself. The audience remained silent. Khrushchev replied: “That is what I did, too.”

On rules of the game:

There are two general features of bargaining that we must first take into account. We have to know who gets to make an offer to whom, i.e., the rules of the game. And then we have to know what happens if the parties fail to reach an agreement.

On taking risks (this conclusion follows after a case study of the 1984 Orange Bowl game between the Nebraska Cornhuskers and the Miami Hurricanes):

If you have to take some risks, it is often better to do this as quickly as possible. This is obvious to those who play tennis: everyone knows to take risks on the first serve and hit the second serve more cautiously.

An explanation of a dominant strategy with a baseball analogy (situation: one or more players on base, there are two outs in the inning, and a batter is facing a 3-2 count):

We say that running on the pitch is the dominant strategy in this situation; it is better in some eventualities, and not worse in any. In general, a player has a dominant strategy when he has one course of action that outperforms all others no matter what the other players do. If a player has such a strategy, his decision becomes very simple; he can choose the dominant strategy without worrying about the rival’s moves.

What is the dominance in a “dominant strategy”?

The dominance in “dominant strategy” is a dominance of one of your strategies over your other strategies, not of you over your opponent. A dominant strategy is one that makes a player better off than he would be if he used any other strategy, no matter what strategy the opponent uses.

Another revelation of the age of this book:

As we write this, the Iraqi invasion of Kuwait has shot the price of oil up to $35 per barrel and experts are divided about the future of OPEC.

On an interesting police tactic:

Police have been known to scare drug dealers into confessing by threatening to release them. The threat is that if they are released, their supplies will assume they have squealed.

How to deter cheating with punishment (you have to read the book to find out the problem with the approach listed below; alternatively, respond with your thoughts in the comments, and I will make note of the correct response):

Next we ask how severe a punishment should be. Most people’s instinctive feeling is that it should “fit the crime.” But that may not be big enough to deter cheating. The surest way to deter cheating is to make the punishment as big as possible. Since the punishment threat succeeds in sustaining cooperation, it should not matter how dire it is. The fear keeps everyone from defecting, hence the breakdown never actually occurs and its cost is irrelevant.

Threats and promises versus warnings and assurances:

Threats and promises are truly strategic moves, whereas warnings and assurances play more of an informational role. Warnings or assurances do not change your response rule in order to influence another party. Instead, you are simply informing them of how you will want to respond based on their actions. In stark contrast, the sole purpose of a threat or promise is to change your response rule away from what will be best when the time comes. This is done not to inform but to manipulate. Because threats and promises indicate that you will act against your own interest, there is an issue of credibility. After others have moved, you have an incentive to break your threat or promise. A commitment is needed to ensure credibility.

On burning bridges:

Armies often achieve commitment by denying themselves an opportunity to retreat. This strategy goes back at least to 1066, when William the Conqueror’s invading army burned its own ships, thus making an unconditional commitment to fight rather than retreat.

On the element of surprise:

If you choose a definite course of action, and the enemy discovers what you are going to do, he will adapt his course of action to your maximum disadvantage. You want to surprise him; the surest way to do so is to surprise yourself. You should keep the options open as long as possible, and at the last moment choose between them by an unpredictable and therefore espionage-proof device.

The essence of brinkmanship:

The essence of brinkmanship is the deliberate creation of risk. This risk should be sufficiently intolerable to your opponent to induce him to eliminate the risk by following your wishes. This makes brinkmanship a strategic move. Like any strategic move, it aims to influence the other’s action by altering his expectations. [Question for the reader: is brinkmanship a threat?]

On inferior technologies:

Our greater experience with gasoline engines, QWERTY keyboards, and light-water nuclear reactors may lock us in to continued used of these inferior technologies.

Final Thoughts

Most books on strategy and game theory can be dry and/or inaccessible to the general reader with overwhelming mathematics. This book is excellent (and interesting to read) because it has an amazing diversity of illustrative examples drawn from political campaigns, corporate relations, sports, OPEC, the military draft, the Cuban Missile Crisis, the Cold War (especially the Cold War, if I may so myself), speed limits, and other interesting topics. The book is mostly self-contained but it does require multiple sittings to go through it (I spent over a week reading this book), especially if you’re careful to go through the cases and work through some of the solutions to verify the authors’ findings. Do keep in mind that this book was published in 1993, so some of the topics are dated. Nevertheless, if you’re at all interested in strategy, game theory, and are comfortable with basic mathematical concepts, this book is definitely worth a read.

John Steinbeck’s Tortilla Flat: Book Review

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I finished reading John Steinbeck’s Tortilla Flat this weekend. This is one of Steinbeck’s earlier novels, published in 1935. It’s a fairly short read, and I read the novel from the Library of America edition.

The novel is split into seventeen chapters, each with a descriptive title. For example, the first chapter is titled “How Danny, home from the wars, found himself an heir, and how he swore to protect the helpless.” The story begins with us finding out about Danny, who used to work as a mule driver during World War I. After he gets back to California, he finds out that he has inherited two houses from his deceased grandfather. The first line of Tortilla Flat:

When Danny came home from the army he learned that he was an heir and owner of property.

In what is a recurring theme in the novel, Danny gets drunk and is thrown in jail. While in jail, he shares a drink with his jailer, and not long after, manages to escape. Danny talks to his friend named Pilon into sharing his brandy and one of his houses (for a fifteen dollar rent).  Pilon soon talks to his friend named Pablo, who also is invited to live in the house, but Pilon mentions to Pablo that a fifteen dollar rent will be due. The story evolves into five friends living in the house: Pilon, Pablo, Jesus Maria Corcoran, Big Joe Portagee, and The Pirate (described as a man whose mind did not grow up with his body, he is a little bit slow and gets easily taken advantage of throughout the novel).

The setting of the novel is Tortilla Flat, a town located above Monterey, California. The five main characters, also known as paisanos, who live in Danny’s house are drunkards, thieves, and vagabonds. They are scheming and conniving, often tricking one another to get a pint of wine to satisfy their cravings. Tortilla Flat revolves around the numerous adventures of these paisanos, including a quest to find treasure on St. Andrew’s Eve by Pilon and Big Joe (they dig at night, only to find a signpost for a geological survey). There are also descriptions of affairs with women. But, I think, the core of this story revolves around heart: the paisanos are generous, and near the end of the novel, when Danny gets afflicted with sadness (he doesn’t leave the porch of his house for a month), his friends throw him the biggest party held in Tortilla Flat. Unfortunately, the night of the party ends in tragedy. The ending of the novel is perhaps not surprising, given the way novel began (no spoilers from me)…

Some interesting quotes from the novel:

An arrival the afternoon:

The afternoon came down as imperceptibly as age comes to a happy man. A little gold entered into the sunlight. The bay became bluer and dimpled with shore-wind ripples. Those lonely fishermen who believe that the fish bite at high tide left their rocks, and their places were taken by others, who were convinced that the fish bit at low tide.

On Jesus Maria Corcoran:

Jesus Maria Corcoran was a pathway for the humanities. Suffering he tried to relieve; sorrow he tried to assuage; happiness he shared.

Is it possible to judge the depth of sleep?

If it were possible to judge depth of sleep, it could be said with justice that Pablo, whose culpable action was responsible for the fire, slept even more soundly than his two friends. But since there is no gauge, it can only be said that he slept very soundly.

Four characters described:

Their campaign had called into play and taxed to the limit the pitiless logic of Pilon, the artistic ingenuousness of Pablo and the gentleness and humanity of Jesus Maria Corcoran. Big Joe had contributed nothing.

A lesson about gifts:

But from everything that happens, there is a lesson to be learned. By this we learn that a present, especially to a lady, should have no quality that will require further present. Also we learn that it is sinful to give presents of too great value, for they may excite greed.

One of the more interesting aspects of the novel is when the narration shifted from third person to first person, occurring late in the novel:

In the year of which I speak, the beans were piled and the candle had been burned.

On time near the sea:

Time is more complex near the sea than in any other place, for in addition to the circling of the sun and the turning of the seasons, the waves beat out the passage of time on the rocks and the tides rise and fall as a great clepsydra.

A mention of sack of potatoes:

They went home, and to their horror, they found that the new sack of potatoes that Pilon had found only that morning was gone.

The party thrown for Danny by his friends was of epic proportions:

Some time a historian may write a cold, dry, fungus-like history of The Party. He may refer to the moment when Danny defied and attacked the whole party, men, women and children, with a table leg…

Another instance of the narrator speaking to the reader, this time to persuade an issue of privacy (you have to read the novel to find out the circumstances):

I shall not go into the bedroom with Father Roman, for Pilon and Pablo and Jesus Maria and Big Joe and Johnny Pom-pom and Tito Ralph and the Pirate and the dogs were there; and they were Danny’s family. The door was, and is, closed. For after all there is pride in men, and some things cannot decently be pried into.

On Nature’s dispositions:

It is not always that Nature arranges her effects with good taste. Truly, it rained before Waterloo; forty feet of snow fell in the path of the Donner Party. But Friday turned out a nice day…

The last sentence of the novel, both conclusive and sad:

And after a while they turned and walked slowly away, and no two walked together.

Final Thoughts

I thought Tortilla Flat was a very good novel, but it pales in comparison to Steinbeck’s greater novella, Of Mice and Men. If you haven’t read any of Steinbeck’s novels, I think Of Mice and Men should be the first one read, as it is the most accessible, and perhaps the most poignant of his shorter novels. I’ve also read The Grapes of Wrath and East of Eden, which is one of my favorite novels of all-time. Primarily, I read Tortilla Flat because I enjoyed Steinbeck’s other novels (outside of the novels I already mentioned, I’ve also read The Winter of Our Discontent, The Pearl, and Travels with Charlie), and I also enjoy reading the more obscure works of particular authors to get a greater understanding of how they wrote (especially interesting is development of Steinbeck’s writing style, from his early novels to his magnum opus, East of Eden). I will probably read one or two more of Steinbeck’s novels before the year’s end, since the Library of America edition of his novels from 1932-1937 is on my bookshelf.

If you’ve read Tortilla Flat before, what did you think of it? Do you agree that one should read Of Mice and Men first? Of Steinbeck’s other novels (The Pastures of Heaven, To a God Unknown, In Dubious Battle, Cannery Row), which one do you recommend I read next?

Readings: Jobs and Genetics, Booking Flights, Roger Ebert

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Here’s what I read over the weekend:

(1) “The Genetics of Job Choice” [The American] – This is an interesting piece suggesting that the kinds of jobs we seek, how satisfied we are in the workplace, and our propensity to “be our own boss” is highly impacted by genes. The most interesting paragraph to me:

Like the character Michael Scott on the hit TV show “The Office,” many business people daily supervise others. Amazingly, your interest in this kind of work is more heavily influenced by your genetic endowment than by how your mom and dad raised you. A study by Betsworth and Bouchard found that about 25 percent of the variation in interest in managing people is attributable to genes, while family environment accounts for only 8 percent of this interest.

(2) “Booking Flights the Frugal Way” [New York Times] – From the Frugal Traveler blog at The New York Times, this is a great post to bookmark. There are a plethora of tips on finding the cheapest flights, for domestic (in the U.S.) and international travel. One of the suggested websites to use is Kayak.com, which I love as well:

My first stop is, as it’s been for years now, Kayak.com. It’s the simplest airfare search engine — minimal graphics, no discount vacation deals to confuse me, and it searches almost every other site out there — and also the most flexible. I can not only choose a window for my departure and arrival times but also decide where I want (or don’t want) to spend a layover, or which frequent-flier alliance to stick with.

(3) “Roger Ebert: The Essential Man” [Esquire Magazine] – a sobering account of how Roger Ebert’s life has changed over the last few years. He has undergone a number of surgeries on his jaw and throat, and in the process, has lost his ability to speak. Everything Ebert says must be written, either on his writing pad or on his computer:

But now everything he says must be written, either first on his laptop and funneled through speakers or, as he usually prefers, on some kind of paper. His new life is lived through Times New Roman and chicken scratch. So many words, so much writing — it’s like a kind of explosion is taking place on the second floor of his brownstone. It’s not the food or the drink he worries about anymore — I went thru a period when I obsessed about root beer + Steak + Shake malts, he writes on a blue Post-it note — but how many more words he can get out in the time he has left. In this living room, lined with thousands more books, words are the single most valuable thing in the world. They are gold bricks. Here idle chatter doesn’t exist; that would be like lighting cigars with hundred-dollar bills. Here there are only sentences and paragraphs divided by section breaks. Every word has meaning.

Roger Ebert writes a lot in his journal, which for all intents and purposes, is his autobiography. The entire article is a must-read, but Ebert’s thoughts on how to live a life resonate with me:

I believe that if, at the end of it all, according to our abilities, we have done something to make others a little happier, and something to make ourselves a little happier, that is about the best we can do. To make others less happy is a crime. To make ourselves unhappy is where all crime starts. We must try to contribute joy to the world. That is true no matter what our problems, our health, our circumstances. We must try. I didn’t always know this, and am happy I lived long enough to find it out.

Links of the Day (02/08/10)

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Here’s what I’ve been reading recently:

(1) “Will You Be E-Mailing This Column? It’s Awesome” [New York Times] – I am not e-mailing this column, but I am blogging about it. The New York Times conducted a six month study to determine which articles were the most popular ones (as measured by number of times the articles were e-mailed):

To make sense of these trends in “virality,” the Penn researchers tracked more than 7,500 articles published from August 2008 to February 2009. They assessed each article’s popularity after controlling for factors like the time of day it was published online, the section in which it appeared and how much promotion it received on the Web home page.

The results of the study are interesting. Most people preferred to send out emotional articles (in particular, those articles that were positive or happy in nature). I also found it surprising that people preferred to share articles which were longer in length (perhaps because longer articles are better researched or more compelling in general). The New York Times elaborates:

Sharing recipes or financial tips or medical advice makes sense according to classic economic utility theory: I give you something of practical value in the hope that you’ll someday return the favor. There can also be self-interested reasons for sharing surprising articles: I get to show off how well informed I am by sending news that will shock you.

The only thing left to do is for you, Dear Reader, to email that article to your friends (or you can just tell them about this blog).

(2) “The Time It Takes to Win It All” [Wall Street Journal] – The New Orleans Saints defeated the Indianapolis Colts in Super Bowl XLIV last night. This article explores the amount of work that players and coaches spend working in a typical NFL season. The most eye-opening paragraph:

According to an operational study of National Football League teams prepared for The Wall Street Journal by Boston Consulting Group, the typical NFL season requires 514,000 hours of labor per team. That’s about eight times the effort it took to conceptualize, build and market Apple’s iPod, according to BCG, and enough time to build 25 America’s Cup yachts. If both Super Bowl teams dedicated themselves to construction rather than football, their members could have built the Empire State Building in seven seasons.

It’s a well-researched article and definitely worth reading.

(3) “In Search of the World’s Hardest Language” [The Economist] – this article is from December 2009, but I just read it the other day in my print version of The Economist. I recommend reading the entire piece (did you know that in Turkish you can create a sentence such as “Çekoslovakyalilastiramadiklarimizdanmissiniz?”, which means “Were you one of those people whom we could not make into a Czechoslovakian?”) but if you’re curious, the Economist’s conclusion for the world’s hardest language:

With all that in mind, which is the hardest language? On balance The Economist would go for Tuyuca, of the eastern Amazon. It has a sound system with simple consonants and a few nasal vowels, so is not as hard to speak as Ubykh or !Xóõ.


Seth Godin’s Linchpin: Book Review

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This is the third book I have finished reading in 2010, but Seth Godin’s Linchpin is the first book I will review here. I found out about this book from reading Seth’s blog (which I read daily, and I recommend you start reading as well, if you don’t read it already). In December 2009, I saw Seth’s post about launching his book in advance to motivated readers:

For a select group of motivated readers, I want to send you a copy of Linchpin (at my expense) three weeks before anyone else can buy one. My US publisher is not sending free review copies to magazines (the few that are left), newspaper editors, TV shows, any of the usual media suspects. Instead, we’re allowing people like you to raise their hands and, if they like the book, asking them to tell the world about it in January.

The filter for these motivated readers? A minimum $30 to Acumen Fund. I made my donation within two minutes of reading Seth’s blog post and was subsequently put on the mailing list (to receive updates about this book). I received my copy of Linchpin in the mail about a week ago, and finished reading it yesterday. What follows is my brief review, with snippets of my favorite quotes and my thoughts, where applicable.

Continue reading →

Readings: Knowledge and Predictability, AOL-Time Warner, Soyabeans

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I’ve decided that in addition to posting about the books I read, I’ll also provide links to interesting articles I find across the web. I don’t see myself posting links daily, but perhaps three to five links once a week. If you think this is a worthy venture, please let me know in the comments!

Here are the articles I’ve read recently which are worth checking out:

(1) “The Degradation of Predictability and Knowledge” [Edge.org] – interesting, but perhaps overly pessimistic take on the internet, by Nassim Taleb, author of Fooled by Randomness and The Black Swan (both of which I read and highly recommend).

(2) “In Retrospect: How the AOL-Time Warner Merger Went So Wrong” [New York Times] – an excellent interview with Stephen Case (co-founder of AOL), Gerald Levin (CEO of Time Warner), and Ted Turner on what went wrong with that fateful merger ten years ago.

(3) “Worth a Hill of Soyabeans” [The Economist] – how the gradual introduction of internet kiosks providing price information affected the market for soyabeans in the central Indian state of Madhya Pradesh. Interesting to discover that not only farmers’ profits increased but that the cultivation of soyabeans increased as well.

On another note, today is a palindrome day (01/11/10).

Hello!

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Hello there!

My name is Eugene, and I’m starting this blog to document what I read.

In 2009, I read around thirty books. This year, I’m on a quest to read at least 52 books (in other words, I’ll try to read at least one book per week).

In the past, I’ve done well in how much I read, but I didn’t really have an outlet where I could write what I read. I hope this blog is the change I’ve been looking for in the last few years.

So, in 2010, I’m going to try to read 52 books. Why 52? Julien Smith provides an excellent answer on his blog:

I’d argue that setting a massive goal, something crazy like one a week, actually helps. To make a comparison, the body reacts strongly to large wounds, expending significant energy to heal them. Small wounds, it doesn’t think much of, which means they can take sometimes longer to heal. So setting a massive goal will make you take it seriously.

I couldn’t agree more. Julien gives more advice on how to accomplish the goal of reading 52 books in a year in his post. I highly recommend you check it out. Who knows, maybe you’ll be inspired to undertake this personal challenge as well?

Onward!