Background
Thinking Strategically by Dixit and Nalebuff is a book that aims to give strategies to help the reader increase their IQ while not necessarily providing solutions to all problems. The book is subtitled "The Competitive Edge in Business, Politics, and Everyday Life." The book is a worldwide bestseller because of the timeless advice, strategies and case examples given throughout its pages. The book was originally written in 1993 but is still listed as one of the best business books around.
Overview
The first chapter of any book usually sets the tone for the rest of the work. In this book, the first chapter has a collection of ten tales of when the strategy was applied to solve problems. The stories begin with a look at the "hot hand" phenomenon that is observed in sports. Fans and analysts of sports believe that when a player has been playing well for a consistent period the player is suddenly expected to repeat the same feat in the future. Let us say that a basketball player has been making all his shots in the first half of an NBA game; a fan would then bet on that player to continue with the same trend in the second half. Although the hot hand theory has worked for some, the author clearly illustrates why this strategy is a fallacy. Many betting companies and casinos depend on this method to place the odds for their games. They benefit greatly when the theory fails. People tend to focus on streaks of occurrence (Dixit and Nalebuff, 7).
The first chapter also explains the concept of zero-sum games. Zero-sum games are the situations where one person’s loss is another one’s gain. This situation is seen in many competitive sports where the loss of one team guarantees the victory for the opposing team. An example for this is the prisoner's dilemma where no balance is reached between the participants. A situation that best explains, this would be the oppression and eventual collaboration of the OPEC nations. In the early years of oil mining, oil-producing nations in the Middle East and African countries had little influence in the global oil market due to the exploitation and dominance of Western companies. The countries resolved to work together and trade as a unit when it came to trading. The collaboration between these countries saw the rise of one of the biggest players in the modern economic playground. The nations were able to overcome the prisoner’s dilemma by collaborating and strengthening their position at the discussion table. The only flaw in this strategy was that there is a stronger underlying sense to cheat even when the terms of the agreement have been set.
The second chapter is all about anticipating your rival's response. The author makes good use of examples to pass the message of the strategies. In this chapter, the main lesson being brought forward is the importance of thinking of all the possible moves that your rival could make. All the options should be considered to be better prepared for any situation. An interesting story that was used in this chapter was the cartoon strip Peanuts. In the scene where Lucy holds the ball for Charlie to kick it, Charlie has options because he considers all the possible scenarios. Lucy wants to play a prank on Charlie so he could decide to play along or not to participate at all.
There is a chapter on “Strategic Moves” which addresses unconditional moves, threats and promises. An unconditional move is an advantage a person enjoys by making the first step in the situation. A similar advantage can be gained when you are in the response end of the initial move through threats and promises. Threats are carried out when it is most beneficial to do it while promises are kept after assurances have been made. When these strategies are implemented well, one can gain an advantage in any negotiations (Dixit and Nalebuff, 17).
Several chapters have a similar approach to business and life in general. One chapter "Credible Commitments" deals with how we handle our relationships with others. Under this chapter one learns about apparent irrationality, contracts and burning bridges. A contract is an accord made between two consenting parties under an agreement that sees both sides lose and gain something. Burning bridges may serve as a strategy for committing to a decision. A case example is when soldiers burnt their own ships once they landed on the enemy’s territory so that they had no option of retreating and were fully committed to the battle.
"Unpredictability" is another important strategy that the book teaches its readers. It is important not to fall into a predictable pattern. It is crucial to surprise others by constantly surprising yourself. When you make your patterns random it is harder for an opponent to use the concept of forward planning to plot against you. The second aspect of this is manifested through the min-max theorem. Find the most efficient way of getting the most done. The target is to spend the minimum effort to get the maximum returns. This concept can be seen in investments and other passive forms of income. There is a way of getting mobility on an investment and see profits grow without doing any actual physical work.
Cooperation and Coordination are all about how the system works in a dependent way to achieve a certain goal. An interesting connection was made between the stock market and beauty contests. In both cases, there are many competing factors with a varying amount of "worth". The value of the competing factors changes in time due to public perception. A beauty pageant contestant who impresses the judges’ gets more points while a company that is performing well will see its stock prices rise due to how investors perceive the company.
The strategy of voting is a very exciting chapter in the book. Voting is divided into two categories of strategies. The median voting is a strategy that is adopted when one is undecided on which option to choose. To avoid being in conflict with whoever would be the new leader, it is easier to vote for the most popular candidate. If more people vote for a certain candidate, and the person wins, you are on the good side. If the person happens to lose, you would be under the safety of the "crowd". The second strategy is known as the naïve voter. In this plan, one votes for an enemy knowing that they would owe you in the future. This idea is dangerous because it involves willingly giving up one's power to the enemy.
Bargaining is crucial in any business or personal relations. People tend to have differing opinions and reaching a suitable compromise is often a key component to maintaining peace. In any negotiation, it is crucial that one's bargaining skills are good. To bargain, one must be able to offer his opponent something that they need for a favour in return to reach an agreeable conclusion. Bargaining is only possible when there is benefit gained from losing out on the negotiation terms (Dixit and Nalebuff, 76).
Incentives are a great motivator. An incentive is an inducer of action through giving out a reward. The book provides merit-based bonuses at work as a good case of the use of incentives to increase performance. Many employers in America had come up with employee bonus systems to improve the performance of the employees at the workplace. The bonus system is so popular that 1 in every three companies in the country offers some bonus for their workers. Big institutions and enterprises are known to give out colossal bonus packages to their best employees.
The book is dated since it was published in the year 1993 some of the content reflects this. The book makes reference to the cold war some of its expected results. The cold war had recently ended at the time when the book was published, and speculations over the future of communist nations such as Chile were called into question. Plenty of political references to this period of time are made in the book, showcasing this book as a product of that political and economic period of history.
The dominant strategy is a controversial one in this book. The writers do not intend to portray dominance as a situation where a person is greater than their opponent but as a dominance of one strategy over other strategies. It is, therefore, implied that one needs to have more than one strategy that can be applied in a conflict. Limiting oneself to only one course of action greatly reduces the chance of success (Dixit and Nalebuff, 3).
The book’s appeal is in the numerous and interesting case scenarios used to describe the different ways of dealing with problems. Police officers have come up with an interesting way of getting confessions from drug dealers. The police threaten to release the captured drug dealers back to the streets. This method works because the drug dealers are scared of being perceived as snitches. If the police were to release a drug dealer, the suppliers would suspect them of having been "turned" against them (Dixit and Nalebuff, 34). The unorthodox methods of getting information from criminals often work better than adopting a hardcore frontline.
The concept of punishment is discussed in this book. The normal response on how to best punish cheaters would be to match the crime with the punishment. The writers of Strategic Thinking believe that this may not be enough to deter some people. The best form of punishment is to set the most severe one for even the smallest offender. If the punishment is much more severe than the pleasure that a person would derive from doing something wrong, there would be less deviant behaviour.
Final Thoughts
This is a beautifully written book that has a good layering, strong messages which are backed with interesting hard-to-forget stories. The case examples have to be the best thing about this book. The cases are always tied to the subject matter and are easy to remember. The writers, ability to get a reader interested in drab topics such as strategy and game theory. The examples used are derived from political campaigns, sports, corporate relations and trade. The diverse pool of topics that are covered in the book makes it easier for people from different backgrounds to relate.
The book is written in an easy to understand, flowing manner. It does not require multiple readings to understand the whole book and a couple of hours are usually sufficient to finish and understand the book. The authors of this book did a beautiful job of compiling good stories to compliment the text. The body of work speaks volume in its delivery and impact in modern business.
The target audience for this book is anyone with a passion for advancing their negotiation and business skills. Students in various disciplines can benefit greatly from reading this book to get strategies to prepare them better for all future negotiations they may encounter. The use of simple language and interesting, relevant stories makes this book a good read for the layman reader looking for a good way to pass the time. The entertaining facts encountered within these pages make reading the book a joyful experience usually lacking in most self-help books.
After going through this good book, I recommend it to all avid readers and those who wish to improve their strategy game. The book offers a series of examples, and motivational stories, any action that may result from reading this book will ultimately lay with the reader of the book. This is a good read for all ages above sixteen.
Works Cited
Dixit, Avinash K, and Barry Nalebuff. Thinking Strategically: The Competitive Edge in Business, Politics, and Everyday Life. New York: Norton, 1991. Print.
