Class 3

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Class 3

  1. 1. The wrong Guy <ul><li>A courtesy of… </li></ul><ul><li>The British Broadcasting Corporation (BBC) </li></ul><ul><li>May, 2006 </li></ul>
  2. 2. In a room, Guy Goma <ul><li>Born in Congo </li></ul><ul><li>Graduate of Congo University, economics and business administration studies </li></ul><ul><li>Waits for an interview for a data support cleanser job. </li></ul><ul><li>Meanwhile… </li></ul>
  3. 3. … in another room, Guy Kewney <ul><li>Born in Britain </li></ul><ul><li>Editor of technology website Newswireless.net </li></ul><ul><li>Waits for a BBC live interview concerning the technology industry ’s move into media: Apple Corp. vs. Apple Corp. </li></ul>
  4. 4. And then, <ul><li>… someone picks up the phone and says: </li></ul><ul><li>Send the GUY up! </li></ul>
  5. 5. <ul><li>Goma, hearing himself introduced as the editor of a website, goes through three distinct facial expressions. The first, almost mischievously smug, is: &quot;Oh my God, I can't believe how badly you are screwing up!&quot; </li></ul><ul><li>The second is the horrified realization: &quot;Oh my God, but I'm the one who's going to look like the idiot here.&quot; </li></ul><ul><li>And the third is amused resignation: &quot;Ah, what the hell.&quot; </li></ul>
  6. 6. Suddenly she announces he ’s the editor of a technology website.
  7. 7. <ul><li>The BBC interviewer, Karen Bowerman, asks Goma if he's surprised by the verdict in the legal battle between Apple Computer and the Beatles' Apple Corp. </li></ul><ul><li>Goma replies, in his heavy French accent: </li></ul><ul><li>&quot;I am very surprised to see this verdict to come on me because I was not expecting that. When I came they told me something else and I am coming, and (got) an interview. So, a big surprise anyway.&quot; </li></ul><ul><li>Bowerman, like a good host, reinforces: &quot;A big surprise, yeah, yes.” </li></ul><ul><li>(Goma) “Exactly!” </li></ul>
  8. 8. <ul><li>Here's what he has to say about the costs of downloading music, and how they'll be affected by the Apple verdict: </li></ul><ul><li>&quot;Actually if you can walk everywhere, you are going to see a lot of people downloading the Internet and the website and everything they want. But I think.... It is much better for development and... to inform people what they want and to get the easy way and so faster if they are looking for.” </li></ul><ul><li>&quot;You can go everywhere on the cyber café and you can take, you can go easy. It is going to be an easy way for everyone to get something to the Internet.&quot; </li></ul>
  9. 9. <ul><li>Mr Goma said his interview was &quot;very short&quot;, but he was prepared to return to the airwaves and was &quot;happy to speak about any situation&quot;. </li></ul><ul><li>Mr Goma later added that next time he would insist upon &quot;preparing myself&quot;. </li></ul>
  10. 11. What ’s going on here? <ul><li>One speaker primes the other. (Exactly!) </li></ul><ul><li>Immersion in a changing context (mgmt) </li></ul><ul><li>Imperfect information (mgmt) </li></ul><ul><li>Immediate response to context (mgmt) </li></ul><ul><li>Unpredictable consequences of actions (mgmt) </li></ul>
  11. 12. www.guygoma.com !!!
  12. 13. The nature of management <ul><li>&quot;Well I found that the myth of the managers kind of orchestra conductor with everything under control and all very organised and systematic and so on just didn’t hold up. It was a job characterised by enormous amounts of interruption, it was almost frenetic, people moving back and forth from one thing to another . A lot of very short tasks , very verbal, not just verbal but oral as opposed to written, not much written. Managers in my study and every other study generally spend as much time with people outside their own units as they do with their own so-called subordinates, whereas management is always described as relationship with subordinates, but managers spend enormous amounts of time with other people outside their units, so they are as much linkers as they are leaders.&quot; </li></ul>
  13. 14. Mintzberg ’s observations <ul><li>&quot;Well, what I found is that half the tasks I watched them perform last less than nine minutes and often you will see a very rapid sequence of activities that will just bounce back and forth between things, they get interrupted a lot and so on. Yes, it sounds like how are you supposed to run an organisation like … by doing things like that, but then you have to understand what running an organisation means. A lot of it means dealing with the issues that nobody else can deal with. So anything that comes up that doesn’t fall neatly into somebody or other’s responsibility naturally ends up with the manager , so managers end up dealing with all kinds of unexpected things. It’s a very unexpected job . </li></ul>
  14. 15. Mintzberg ’s observations (cont’d.) <ul><li>The real issue is how do you think long term? How do you think systematically? How do you plan, or develop strategy under those circumstances? And the answer is that you don’t develop strategy the way the strategy text books suggest you do which is in a very systematic or planning process. Not only because the job is hectic but because it wouldn’t work anyway, because strategy has to be, in my view, crafted, it has to be evolved, it has to emerge as you deal with issues and put them together and you do your thinking all the time. It’s very sterile to think that people go off and think in uninterrupted way. Sometimes it pays to do something like that but you know it could be in the shower or it could be driving the car or it could be in the midst of a meeting or whatever it is. I think effective strategists are constantly mulling over all kinds of issues and putting it together as a kind of moving average if you like, or a moving symphony of the various things they are dealing with.&quot; </li></ul>
  15. 16. GOL ’s example
  16. 17. Then we get back to management science… <ul><li>A hub-and-spoke model… </li></ul>
  17. 18. Management science methodology: added options can only improve choice <ul><li>Methodology </li></ul><ul><li>1. Problem identification & modelling </li></ul><ul><li>2. Determination of the set of possible alternatives </li></ul><ul><li>3. Determination of an evaluation criterion for these alternatives </li></ul><ul><li>4. Evaluation of the alternatives </li></ul><ul><li>5. Selection of an alternative as a final decision </li></ul>
  18. 19. “ When choice is demotivating” <ul><li>Researchers let subjects taste jams in a gourmet food store. Subjects buying a jar received a discount. </li></ul><ul><li>VARIETY 1: 6 options for tasting (30%) </li></ul><ul><li>VARIETY 2: 24 options for tasting (3%) </li></ul>
  19. 20. “ When choice is demotivating” (2) <ul><li>Researchers let students taste gourmet chocolates, asking for ratings. Students were then asked </li></ul><ul><li>VARIETY 1: 30 options for tasting </li></ul><ul><li>VARIETY 2: 6 options for tasting (higher ratings & 4 times more prone to accept chocolate as payment for participation) </li></ul>
  20. 21. “ When choice is demotivating” (3) <ul><li>Speed dating: </li></ul><ul><li>Which scenario gets more matches? </li></ul><ul><li>6 x 6 people </li></ul><ul><li>12 x 12 people </li></ul>
  21. 22. “ When choice is demotivating” (4) <ul><li>Researchers let students choose between: </li></ul><ul><li>USD 2.00 </li></ul><ul><li>A nice pen (value USD2.75) </li></ul><ul><li>75% choose the pen </li></ul>
  22. 23. “ When choice is demotivating” (4) <ul><li>Researchers let students choose between: </li></ul><ul><li>USD 2.00 </li></ul><ul><li>A nice pen (value USD2.75) </li></ul><ul><li>2 pens (value also around USD2.75) </li></ul><ul><li>45% choose the pen! </li></ul>
  23. 24. <ul><li>So, when people have a larger number of choices, people actually decide NOT to decide! </li></ul>
  24. 25. My own little dilemma: “action is the enemy of thought” When I grow up will I be a manager or a researcher?
  25. 26. 2004, Amman, Jordan Club of Rome Think Tank Thirty Meeting
  26. 27. One month later, in Helsinki…
  27. 34. August 26-30, 2005 <ul><li>3 events: </li></ul><ul><li>Inauguration of the Brazilian Chapter </li></ul><ul><li>tt30’s annual meeting </li></ul><ul><li>The 1 st tt30 event open to the public & press </li></ul>
  28. 35. Some great supporters of the inauguration…
  29. 36. tt30 Annual Meeting
  30. 37. tt30’s first public event
  31. 39. “ The economics of collapse” tt30 Brazil 1 st project outline <ul><li>“ The economics of collapse”: could Eastern Island’s fate have been predicted by system dynamics? </li></ul><ul><ul><li>Economist </li></ul></ul><ul><ul><li>Mathematician / system dynamicist </li></ul></ul><ul><ul><li>Arqueologist / Antropologist </li></ul></ul><ul><ul><li>Ecologist </li></ul></ul>
  32. 41. Wanna play a game?
  33. 42. <ul><li>Guess a number from [0,100] which will be closest to 70% of the average of all numbers guessed. </li></ul>The ‘Beauty contest’ game
  34. 43. Working Group Task
  35. 44. Three examples <ul><li>Beauty contest games </li></ul><ul><li>Ultimatum bargaining </li></ul><ul><li>Continental divide </li></ul>
  36. 45. The NASDAQ Bubble <ul><li>December 3, 1999: 3.507 points </li></ul>
  37. 46. NASDAQ <ul><li>December 3, 1999: 3.507 points </li></ul><ul><li>3 months later... </li></ul><ul><li>March 10, 2000: 5.132 points </li></ul>
  38. 47. NASDAQ <ul><li>December 3, 1999: 3.507 points </li></ul><ul><li>3 months later... </li></ul><ul><li>March 10, 2000: 5.132 points </li></ul><ul><li>2 months later... </li></ul><ul><li>May 10, 2000: 3.367 points </li></ul>
  39. 48. NASDAQ <ul><li>December 3, 1999: 3.507 points </li></ul><ul><li>3 months later... </li></ul><ul><li>March 10, 2000: 5.132 points </li></ul><ul><li>2 months later... </li></ul><ul><li>May 10, 2000: 3.367 points </li></ul><ul><li>Minimum: </li></ul><ul><li>October 10, 2002: 1.108 points </li></ul>
  40. 49. NASDAQ <ul><li>December 3, 1999: 3.507 points </li></ul><ul><li>3 months later... </li></ul><ul><li>March 10, 2000: 5.132 points </li></ul><ul><li>2 months later... </li></ul><ul><li>May 10, 2000: 3.367 points </li></ul><ul><li>Minimum: </li></ul><ul><li>October 10, 2002: 1.108 points </li></ul><ul><li>Now: </li></ul><ul><li>May 23, 2006 2.178 points </li></ul>
  41. 50. Stock market bubbles <ul><li>‘Beauty contest’ game: </li></ul><ul><li>Guess a number from [0,100] which will be closest to 70% of the average of the numbers guessed. </li></ul>
  42. 51. ‘Beauty contest’ game <ul><li>“ It is not a case of choosing those which, to the best of one’s judgment, are really the prettiest, nor even those which average opinion genuinely thinks the prettiest. We have reached the third degree, where we devote our intelligences to anticipating what average opinion expects the average opinion to be. And there are some, I believe, who practice the fourth, fifth, and higher degrees” </li></ul><ul><li>(Keynes, General theory of Employment, Interest, and Money, 1936, p.156) </li></ul>
  43. 53. Three examples <ul><li>Beauty contest games </li></ul><ul><li>Ultimatum bargaining </li></ul><ul><li>Continental divide </li></ul>
  44. 54. Your cruise picture, for just US$5.00!
  45. 55. The ultimatum game <ul><li>We could make an offer of US$1.00 for the picture… </li></ul><ul><li>One player makes an offer to split a certain amount; if the offer is accepted, then both get their parts, otherwise, nobody receives anything. </li></ul><ul><li>What’s the Nash Equilibrium? </li></ul>
  46. 56. <ul><li>Economically, what should a proposer offer? </li></ul><ul><li>Economically, what should a responder accept? </li></ul>
  47. 58. Three examples <ul><li>Beauty contest games </li></ul><ul><li>Ultimatum bargaining </li></ul><ul><li>Continental divide </li></ul>
  48. 59. The continental divide game <ul><li>A geographic line that divides North America in water flow. If you throw a glass of water in the continental divide in Alaska, part of it will flow to the Pacific Ocean and the rest to the Arctic Ocean. </li></ul><ul><li>Two drops that start infinitesimally close to each other end up oceans apart. </li></ul>
  49. 60. Continental divide <ul><li>Should you place your internet film company close to the </li></ul><ul><li>Media whiz kids? Hollywood? </li></ul><ul><li>Computer Geeks? Silicon Valley? </li></ul>
  50. 61. <ul><li>Players pick a number between 1 and 14. </li></ul><ul><li>Payoff is according to choice and median of all players. </li></ul><ul><li>Two Nash equilibria! </li></ul>
  51. 63. <ul><li>Payoffs have the property that, if a player guesses that the median is slightly below 7, then the best response is to go for lower numbers. </li></ul><ul><li>Thus, if the medians are initially low, responding to them will drive numbers lower until they reach 3. </li></ul><ul><li>And all of this is symmetrical for higher numbers and 12. </li></ul>
  52. 65. Equilibrium in Games
  53. 66. The Dumping Game Mr. Jones and Mr. Smith own weekend homes on side by side plots of land in a remote area that has no routine garbage collection. They can contract to have their garbage picked up by a trucking firm, but it would cost either property owner $500 per year to arrange for the garbage pickup. Alternatively, Mr. Jones can sneak across the property line and dump his garbage on Mr. Smith's property, and similarly, Mr. Smith can dump his garbage on Mr. Jones's property.
  54. 67. The Game The two landowners will make their decisions simultaneously, so we will model it in normal form. Each landowner chooses between two strategies: pay for a garbage pickup or dump the garbage on the neighbor's property. But what are the payoffs in this game? The benefits the two landowners get from their weekend property are subjective benefits -- but …
  55. 68. The Payoffs We can estimate that the money value of a person's subjective enjoyment of his property – it is the smallest amount of rent that he would accept in return for giving up his own occupation of the property. We will say that each person values his experience at his weekend home at $5,000 per year if there is no dumping, but at $4,000 per year if there is.
  56. 69. Payoff Table
  57. 70. Rationality
  58. 71. Rationality for Mr. Jones
  59. 72. “ Dump&quot; is a “Dominant Strategy.&quot; Dominant Strategy -- Whenever one strategy yields a higher payoff than a second strategy, regardless which strategies the other players choose, the first strategy dominates the second. If one strategy dominates all other strategies (for a particular player in the game) it is said to be a dominant strategy (for that player.)
  60. 73. Dominant Strategy Equilibrium Dominant Strategy Equilibrium -- If, in a game, each player has a dominant strategy, and each player plays the dominant strategy, then that combination of (dominant) strategies and the corresponding payoffs are said to constitute the dominant strategy equilibrium for that game.
  61. 74. Noncooperative Equilibrium The dominant strategy equilibrium is a “noncooperative equilibrium.” In this case, though, Mr. Jones and Mr. Smith would probably prefer a “cooperative solution.”
  62. 75. Cooperative Equilibrium Cooperative solution -- the cooperative solution of a game is the list of strategies and payoffs that the participants would choose if they could commit themselves to an enforceable coordinated choice of strategies.
  63. 76. For Example, … Suppose, to continue the example, that Mr. Smith and Mr. Jones come together and negotiate a contract. The contract states that each of them will hire a truck, and that there will be no dumping. In fact, contracts of this kind among homeowners are quite common. They are called &quot;covenants.&quot;
  64. 77. Social Dilemma 1. The Dumping Game, the Prisoner’s Dilemma, Advertising and Mobilization Games are examples of Social Dilemmas.
  65. 78. Social Dilemma 2. Social dilemma – A social dilemma is a game that has a dominant strategy equilibrium and the dominant strategy solution is different from the cooperative solution to the game.
  66. 79. Nash Equilibrium Nash Equilibrium— For any game in normal form: if there is a list of strategies, with one strategy per player, such that each strategy on the list is the best response to the other strategies on the list, that list of strategies is a Nash equilibrium.
  67. 80. Nash and Dominant Strategy 1 <ul><li>Both reflect rational choice of strategies </li></ul><ul><ul><li>That is, best response on both sides </li></ul></ul><ul><li>Both are noncooperative </li></ul><ul><li>But Nash is more general. </li></ul>
  68. 81. Nash and Dominant Strategy 2
  69. 82. How can we choose between two Nash equilibria? Schelling Point – If a game has two or more Nash equilibria, and some clue can lead the participants to believe that one equilibrium is more likely to be realized than the other, the more likely equilibrium is called a Schelling point.
  70. 83. Paper, Stone and Scissors This game has no Nash equilibrium.
  71. 84. Conclusion on Nash Equilibrium <ul><li>Nash equilibrium is a very general &quot;rational solution&quot; to a game, but it has some shortcomings from that point of view. </li></ul><ul><ul><li>The Nash equilibrium may not be unique. </li></ul></ul><ul><ul><li>Not all games have Nash equilibria. </li></ul></ul><ul><li>Nevertheless, it has wide applications. </li></ul>
  72. 85. Economics Artificial Intelligence Management Science Pillars of rationality Search Symbols Enumeration Logic Expected Utility Transitive ordering of alternatives Invariance Continuity Maximizing & satisficing Game theory Mathematical programming Equilibrium Inference reasoning

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