The Art of Strategy
Home About Buy the Book Download Excerpt Resources Play a Game Contact
About the Authors News and Reviews

Return to Thinking Strategically news and reviews.


"Strategy and Choice" by Jim Leitzel, Southern Economic Journal, April 1993.

Edited volumes have a well-deserved reputation for eliciting low effort from their contributors, at least relative to peer-reviewed journals. The reasons are understandable, given the nature of the (perhaps implicit) contract between contributors and editors and the resulting potential for opportunistic behavior. And the reputation is self-enforcing. Once contributors understand that others will be suspicious of the quality of their work in non refereed outlets, they volume that nevertheless succeeds in presenting an array of high-quality work therefore presents a puzzle—how was it accomplished, and can similar methods succeed more generally? Richard Zeckhauser's excellent collection poses such questions. One answer that it suggests is to rely on non-pecuniary forms of motivation, perhaps by tying the contribution to personal relationships with an admired and renowned colleague. Strategy and Choice is a tribute to Thomas Schelling.

In general, it is a worthy tribute, with most of the topics closely aligned to subjects in which Schelling's research was pioneering. Most of the chapters are also accessible to non-economists; indeed, a substantial minority are written by non-economists. Those who provided endorsements for the back cover of the volume signal the wide appeal—Solow and Hirshleifer are not surprising, but they are joined by Linda Wertheimer of National Public Radio and U.S. Court of Appeals Judge Stephen Breyer. The chapters, other than Zeckhauser's introduction, are grouped into 3 areas, distinguished by whether the problems they address generally involve one, a few, or many decisionmakers. Space considerations necessitate a selective review.

Robert Frank kicks off the initial, "many player" section by looking at "positional externalities," situations marked by the players' interest in their relative positions. The wars of attrition that arise from the battle to achieve the best relative position are used by Frank to examine such diverse phenomena as excessive formalism in economics, bureaucratic jargon, and restrictions on the length of work weeks. These situations might feature occasional abrupt changes, as the social waste arising from the war of attrition may eventually provide incentives for some individuals to opt out of the competition, and governmental limits on the wasteful competition may also be appropriate. The positional externality theme is picked up later in the book by Amos Tversky and Dale Griffin. These authors note, as does Frank, that an individual actually is composed of multiple selves—the Schelling influence is obvious—and the decisions of earlier selves may impact on later selves. Tversky and Griffin examine the channels through which current happiness is influenced by positive experiences in the past. They identify two transmission channels. The first, the "endowment effect," follows the expected route whereby positive experiences contribute, positively, to happiness. The "contrast effect," however, consists of how one's present position compares with an earlier experience. Here, prior positive developments tend to result in diminished current happiness. Tversky and Griffin describe some interesting experiments that have been devised to measure these two influences.

Beyond Frank's article, the "many players" section is distinguished by an extensive and entertaining catalogue of envy, envy pre-emption, envy-provocation, envy-reduction, envy etc., by Jon Elster. While Elster's analysis of envy is perhaps less successful than his descriptive efforts, he demonstrates convincingly the importance of envy in human behavior. Political scientist Robert Jervis contributes a chapter on systems effects, an area in which he has been working for many years. The term "systems effects" refers to those results of behavior that are not straightforward, but rather are brought about by changing the behavior of other actors or the environment. Clearly, systems effects play a role in a wide variety of circumstances, but as applied to politics and statesmanship it is hard to determine when the systems effects are or are not important. At any rate, this volume will serve to bring Jervis' influential ideas to the attention of many economists, who may find themselves hankering for some of that oft-maligned economic formalism.

The "few players" section is the strongest in the volume. Avinash Dixit and Barry Nalebuff start it off with a slightly modified version of their "Credible Commitments" chapter from Thinking Strategically (1). Russell Hardin, a professor of political science, philosophy, and public policy studies at Chicago, follows with an article on trust. While interesting, this chapter may again make economists uncomfortable. For example, the notion that a completely trusting society may not form an equilibrium, because unscrupulous people could then gain by betraying trust, appears to be missing. Robert Klitgaard writes what is essentially a 3-part chapter, and all of the parts are quite good. The first section is a Schelling-inspired musing on the strategy of tributes; second is a brief methodological account of Schellingesque policy analysis; and, third is a case study of anti-corruption measures in the Philippines Bureau of Internal Revenue that profitably employs basic economic reasoning. Jerry Green follows, in the most technically demanding of the chapters, with a model testing Schelling's contention that bargainers might improve their payoffs by hiring agents to conduct negotiations. Employing a cooperative game-theoretic approach to a 3-person bargaining game, Green finds that the validity of the contention depends on whether the partnership formed by the original player and his agent involves a silent partner, and whether their payoffs are monotonically increasing in the size of the negotiated settlement. Though they differ dramatically in style and subject matter—one, a non-technical piece of applied political economy, and the other, a formal economic model aimed at answering a specific question—the Klitgaard and Green chapters are perhaps the best in the collection. Vincent Crawford completes the "few players" section by describing Schelling's influence on bargaining and coordination games. The result is a sort of non-technical, historical tour of the economic analysis of coordination games. (One interesting tidbit Crawford uncovers is Schelling's apparent priority in the discussion of "common knowledge" in games.) While the paper satisfactorily explains how the analysis of such games has been influenced by Schelling, I was disappointed to find that it did not attempt to provide an intellectual biography of the tributee.

The concluding, "individual decision maker" section begins with the Tversky and Griffin piece already noted, and eventually closes with W. Kip Viscusi taking on the Schellingesque topic of valuing human life. His review of standard methodologies and estimates is workmanlike, but it is in the second half of the paper, which deals more closely with policy issues, that the subject comes, well, alive. Combined with Klitgaard's chapter, Viscusi's contribution suggests that this fine volume may have been improved by a greater emphasis on policy. As Schelling (2, vi) noted, in a passage that is twice quoted in the Zeckhauser volume (215, 266): "Motivation for the purer theory came almost exclusively from preoccupation with (and fascination with) 'applied' problems; and the clarification of theoretical ideas was absolutely dependent on the identification of live examples."

Jim Leitzel, Duke University

1. Dixit, Avinash, and Barry Nalebuff. Thinking Strategically. The Competitive Edge in Business, Politics, and Everyday Life. New York: W. W. Norton & Company, 1991.
2. Schelling, Thomas C. The Strategy of Conflict. Cambridge, Mass.: Harvard University Press, 1960.


Copyright © 2008 by Avinash Dixit and Barry Nalebuff