Summary Lectures People in Business and Society VU IBA
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Course
People In Business And Society (E_IBA1_PBS)
Institution
Vrije Universiteit Amsterdam (VU)
Summary containing all the relevant theory discussed during the lectures, including knowledge clips, of the course People in Business and Society given in the first year of International Business Administration at the Vrije Universiteit Amsterdam. By learning this summary I personally passed the fi...
Game theory (a simplified reality) is about
- Identifying determinants of human decisions in strategic situations
- Mathematical models that describe strategic situations
Assumptions in a game theory: (both simultaneous and sequential)
- Players are rational; they try to maximize the payoffs, could not be monetary
- Players must reason about how others might make their choices
- The rules of the game and rationality are common knowledge
Cultural levels
- National culture: Netherlands, Ghana
- Organizational culture (corporate): HEMA, Bijenkorf
- Occupational culture: managers, workers
- Up and coming markets: China, India
Definition of culture by Hofstede:
Culture is ‘the collective programming of the mind distinguishing the members of one
group or category of people from others.’
Six dimensions of national culture: (by Hofstede)
1. Individualism vs. Collectivism (IDV)
2. Power Distance Index (PDI)
3. Masculinity vs. Femininity (MAS)
4. Uncertainty Avoidance Index (UAI)
[dimensions added later:]
5. Long-Term Orientation vs. Short-Term Orientation (LTO)
6. Indulgence vs. Restraint (IND)
1.Individualism vs. Collectivism (IDV)
“Individualism on the one side versus its opposite, Collectivism, as a societal, not an
individual characteristic, is the degree to which people in a society are integrated into
groups. On the individualist side we find cultures in which the ties between
individuals are loose: everyone is expected to look after him/herself and his/her
immediate family. On the collectivist side we find cultures in which people from birth
onwards are integrated into strong, cohesive in-groups often extended families (with
uncles, aunts and grandparents) that continue protecting them in exchange for
unquestioning loyalty and oppose other in-groups.”
2.Power Distance Index (PDI)
“Power Distance has been defined as the extent to which the less powerful members
of organizations and institutions (like the family) accept and expect that power is
distributed unequally. This represents inequality (more versus less), but defined from
below, not from above. It suggests that a society's level of inequality is endorsed by
the followers as much as by the leaders.”
3.Masculinity vs. Femininity (MAS)
“Masculinity versus its opposite, Femininity, again as a societal, not as an individual
characteristic, refers to the distribution of values between the genders which is
another fundamental issue for any society, to which a range of solutions can be
,found. The IBM studies revealed that (a) women's values differ less among societies
than men's values; (b) men's values from one country to another contain a dimension
from very assertive and competitive and maximally different from women's values on
the one side, to modest and caring and like women's values on the other. The
assertive pole has been called 'masculine' and the modest, caring pole 'feminine'.
The women in feminine countries have the same modest, caring values as the men;
in the masculine countries they are somewhat assertive and competitive, but not as
much as the men, so that these countries show a gap between men's values and
women's values. In masculine cultures there is often a taboo around this dimension”
4.Uncertainty Avoidance Index (UAI)
“Uncertainty Avoidance is not the same as risk avoidance; it deals with a society's
tolerance for ambiguity. It indicates to what extent a culture programs its members to
feel either uncomfortable or comfortable in unstructured situations. Unstructured
situations are novel, unknown, surprising, and different from usual. Uncertainty
avoiding cultures try to minimize the possibility of such situations by strict behavioral
codes, laws and rules, disapproval of deviant opinions, and a belief in absolute Truth;
'there can only be one Truth and we have it'.”
5.Long-Term Orientation vs. Short-Term Orientation (LTO)
“[...] the long-term pole corresponds to Bond’s Confucian Work Dynamism. Values
found at this pole were perseverance, thrift, ordering relationships by status, and
having a sense of shame; values at the opposite, short term pole were reciprocating
social obligations, respect for tradition, protecting one’s ‘face’ and personal
steadiness and stability.”
6.Indulgence vs. Restraint (IND)
“Indulgence stands for a society that allows relatively free gratification of basic and
natural human desires related to enjoying life and having fun. Restraint stands for a
society that controls gratification of needs and regulates it by means of strict social
norms.”
Cultural differences – leadership
,Cultural differences - communication
Sequential move games
Reasoning backwards; look forward and reason backward
Outcome of the game is Nash Equilibrium
Simultaneous – same decision deadline
Sequential – time component
Nash equilibrium:
If no player wants to deviate to another strategy given that the rest of the players are
playing the equilibrium strategy. It is a situation where no participant can gain by a
change of strategy if the strategies of the others remain unchanged.
Subgame perfect Nash Equilibrium
Defined by the players’ choices in ALL decision nodes of the game tree.
Equilibrium outcome
Defined by the equilibrium path, the strategy.
Equilibrium payoff
The solution to the game.
- Choices off the equilibrium path are choices that do not lie on the equilibrium
path.
- The first person is the first number!
, Counterfactual thinking
- In the example we have seen that equilibrium behaviour in sequential move
games depends on things that never happen.
- Essentially: Things that DO happen, happen exactly because of things that
DO NOT happen!
- Many scientists have come to a wrong conclusion about causes of human
behaviour because of the lack of counterfactual thinking (“What would have
happened otherwise?”)
Union has bargaining advantage because of last take-it-or- leave-it offer
(Relative) advantage gets smaller as the number of operating days increases
Waiting is costly Parties reach agreement on first day (if both fully
rational...)!
Outside options (BATNA = “Best Alternative to a Negotiated Agreement”) and
waiting costs matter Both affect negotiation pie and relative advantage!
If time between offers is short and bargaining horizon is long Split the pie
down the middle right from the start!
The ultimatum game is the last shot opportunity.
Proposal power is super important.
When you’re indifferent, you might as well reject or accept the offer.
Non-violent communication is about hearing each other’s’ needs.
Credible and non-credible promises and threats
Promises during electoral campaigns, business meetings, or job interviews.
Non-binding communication is also called “cheap talk.”
Is the “cheap talk” during job interview a credible promise/ threat (towards the
candidate/ employer)?
Sequential Move Games and Backward Induction help analyse such situations and
promises/ threats.
Verbal promises often cannot be trusted (in work environment, in society)
Solution use commitment tools!
Commitment devices BINDING TOOLS
In many strategic situations where multiple Nash Equilibria exist it is possible
for a player to force an outcome (s)he favours by irrevocably committing to a
certain plan of actions before the game is played.
This usually involves some form of limiting player’s own choices
– Ulysses and the Sirens
– Armies burning bridges
– Emotions
Important difference to “cheap talk:” a binding action is taken.
A commitment device only works if the other players know about it, it is useless if
there’s no communication about it.
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