People in business and society; Lecture notes & Chapter summary
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Course
People In Business And Society (E_IBA1_PBS)
Institution
Vrije Universiteit Amsterdam (VU)
Book
The Art of Strategy
A very in depth document of the VU IBA course People in Business and Society 2022 including lecture notes and chapter summaries (1, 2, 3, 4, 5, 6, 7, 8, 9, 13) from the course textbook 'The Art of Strategy'. Contains ALL the theoretical study material from the PiBS course.
People in Business and Society - Lecture notes
Lecture notes, Chapter summaries
Chapter 1
Ten tales of strategies
Tale of strategy 1: pick a number between 1 and 100; put yourself in other people's shoes & understand
people's objectives.
Tale of strategy 2: winning by losing
Tale of strategy 3: the hot hand
Tale of strategy 4: to lead or not to lead
Tale of strategy 5: here I stand
Tale of strategy 6: thinning strategically
Tale of strategy 7:
(thought experiment)
● A reform bill that;
○ Raises the limit for individual contribution to federal (US) candidates from 1k to 5k
■ But prohibits contribution from all other sources (cooperations, unions, etc)
○ Neither republicans or democrats have interest in this bill
○ A billionaire (EB: interested in the bill) make the offer;
■ If the bill was defeated, the EB would donate $1 billion to the political party with
most votes to getting it passed
■ If the bill was passed, EB would not donate anything
The bill would sail through the congress and cost EB nothing given the application of game theory
● Democrats and republicans deliver the same votes for passing the bill
● Neither party would receive the billion dollar check
○ There is an incentive for one party to not want the other to gain that money.
Tale of strategy 8: mix your plays
Tale of strategy 9: never give a sucker an even bet
Tale of strategy 10:
● Americans get a taxi in a foreign country, the meter doesn't work so he will ask for lower price
, PiBS 2022
● They arrive at the hotel and the driver asks for $30 but they protest and counter for $15.
● The taxi driver is angry, locks the doors, and drives back to the starting point
Considerations;
● Negotiation
● Cultural barriers/behavior differences
Solution;
● Bargain outside the taxi at the end destination
● Respect cultural differences and negotiate in an environment that enables winning negotiations
Lecture intro 1
Introduction to game theory
Game theory;
Combination of two fields; organizations, societies. Strategic behavior in organizations/society
(game theory). People from different backgrounds interacting (culture).
Game theory; identifying determinants of human decisions in strategic situations using
mathematical models to describe them.
- Simplified reality displayed like a map.
- Business people and corporations must develop good competitive strategies to survive
and find cooperative opportunities to grow the pie.
Models and theories however are unrealistic as they reconstruct the complex environment in a
simplified manner.
- Remove distracting elements
- Restrict model to essential elements
- Isolate a particular mechanism
Crucial elements of strategic situations
Game theory is;
- Understanding the situation/game you're facing
- Interpreting and revealing information
- Capacity for anticipation of others actions
- Outdoing an adversary
- Finding ways to cooperate, even when others are motivated by self-interest, not
benevolence
Game theory studies;
- Strategic environments that involve several players who make choices.
- The payoffs depend on the choices of everyone in the game.
Assumptions;
- Players are rational; try to max payoffs (not always monetary)
- They have to consider how others might make their choices
- Players are rational, common knowledge
, PiBS 2022
Two different games;
1. Simultaneous move games (P1+P2, P1+P2..)
a. Used if players choose their strategies without knowing the choices of others
(matrices)
b. Mixed motives
2. Sequential move games (P1, P2, P1, P2..)
a. If players know what others have done when playing (game tree)
Information
Complete Incomplete
Moves Simultaneous Simultaneous move game Simultaneous move game
Complete information Incomplete information
(Cooperation, coordination) (Adverse selection)
Sequential Sequential move game Sequential move game
Complete information Incomplete information
(Trust, Bargaining) (Moral Hazard)
*If both players chose the same action = higher payoff, most likely to have multiple nash equilibria.
Zero sum game; one wins all, one loses all.
- It is disadvantageous to let the opponent see your actual choice in advance, then you benefit by
choosing at random from your available pure strategies.
- Lose payoff if other player knows your plan
Nash equilibrium;
● John Nash invented in 1951
● “No players want to deviate to another strategy given the others play the equilibrium strategy.”
● The rules;
○ Look forward, reason backward
○ Use dominant strategy
○ Eliminate dominant strategies from considerations
○ Search all cells for a pair of mutual best responses in the game cell (Nash equilibrium).
Any simultaneous game.
To find the perfect equilibrium, first check all the choices in different cases. The outcome will then be the
equilibrium path. The choice Off-the-path are the options Not chosen. In the game, there needs to be
common knowledge and rational players to find the equilibrium.
, PiBS 2022
Lecture intro 2
Globalization and mobility; internet, traveling, trade, migration.
Importance of understanding cultural differences;
● You become engaged
● Feel more comfortable within a diverse environment
● You are enabled to collaborate in a diverse environment effectively
● Your aptitude in cross-cultural communication increases, fostering adaptation.
● Better understand and solve work-related issues dealing with a diverse workforce
● Empathy increases
Different levels of culture;
● National; NL, China, USA
● Organizational; HEMA, KLM, Shell
● Occupational; managers, workers, accountants..
● Up and coming markets; china, india, latin america
Mapping leadership cultures e Top down
● Indonesia
○ China
● Saudi arabia
● India
● Russia
○ Mexico
● US ● Brazil
■ UK ○ France
● Canada
● Australia
Egalitarian Hierarchical
● Belgium
○ Germany
● NL
● Denmark
○ Norway ● Japan
○ Sweden
Consensual
In a highly globalized society, people need to be open-minded and understand how to behave/respond to
multicultural teams.
● Different models in culture;
○ Relational; western - individualism
○ Rational; empathy, connections (asia/africa)
○ Honor model of negotiation; moral integrity, protectionism (middle east)
Different theories about culture
, PiBS 2022
=> Schwartz (1999): Cultural values
=> House et al. (2004): Culture and leadership
=> Kluckhohn and Strodtbeck (1961): Values orientation
Five basic types of problems in society;
1. Time orientation; past, present, or future?
2. Relation to humanity and natural environment; Mastery, harmonious, or submissive?
3. Relation to other people; hierarchical (“lineal”), as equals (“collateral”), or individualistic?
4. Motive for behaving; being, being-in-becoming, or achievement?
5. Nature of human beings; evil/mixture/neutral/good and mutable/immutable?
=> Schein's definition of culture; “culture is the sum of workable solutions for problems of external
adaptation and internal integration that a group, organization, or country has found.”
Schein's models of culture
=> Hofstede’s definition of culture; culture is “the collective programming of the mind distinguishing
the members of one group or category of people from others.”
Hofstede's dimensions of culture
1. Individualism vs collectivism (IDV)
Individualism can be defined as a preference for a loosely knit social framework in which individuals are
expected to take care of only themselves and their immediate families.
Its opposite, collectivism, represents a preference for a tightly-knit framework in society in which
individuals can expect their relatives or members of a particular in-group to look after them in exchange
for unquestioning loyalty.
2. Power distance index (PDI)
This dimension expresses the degree to which the less powerful members of a society accept and expect
that power is distributed unequally. The fundamental issue here is how a society handles inequalities
among people.
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