The Strategy of Conflict

Book Details:
Title: The Strategy of Conflict
Authors: Thomas C. Schelling
Publisher: Harvard University Press (1980); Reprint edition (December 12, 2006)
Paperback: 326 pages
Language: English
ISBN: 0674840313
List Price: $22.50
Amazon Sales Rank: #9,855 (!)

Review:
Brilliant Work from a Brilliant Scholar
Thomas Schelling's 1960 book, The Strategy of Conflict, was a significant work in game theory and is one of the reasons for his receipt of the Nobel Prize in 2005. It is 254 pages plus three appendices.

Schelling's work is a refreshing look at game theory. He is a consistent methodological individualist, and he emphasizes the aspects of reality that are often overlooked in game theory. He carefully discusses the different aspects of the pure-conflict, mix-motive, and pure-cooperation games. He shows that often in negotiation, impotence is a source of strength. By giving up the ability to buy a car over $X to a third party, the buyer can now negotiate more successfully with the seller who now knows there is no reason to continue bargaining; he can either take the sale at that price or make no sale at all. The buyer's ability to make a commitment before the other party does, allows him a significant advantage. Schelling then analyzes a variety of different situations and the effect of promises, threats, third-parties, mediator, and arbitrators. He also shows the advantage of retaliation over simply defense from an attack, and the important role of uncertainty in retaliation.

Schelling's discussion of "focal points" is of great popularity. The basic idea is that even when two people cannot communicate at all, they can often reach an agreement. For example, imagine a game where there is $100 and it is to be split by two people who cannot talk to each other. In order for each person to win, they must independently split the money in exactly the same division. How would you split the money? It turns out that many people split it 50/50. This is a solution that seems like something he thinks that I think that he thinks that I think….These focal points are often arbitrary but they carry a distinction; they are a place where one asks "if not here, where?" Focal points can be based on historical trends, cultural understandings, equality, or simplicity. It is basically anything that one person thinks will draw the other person's attention. Schelling improves on traditional game theory (such as that of Nash and Aumann) by including these aspects of interaction which are generally lost in the abstract modeling. Additionally, he emphasizes the inclusion of asymmetry of payouts.

Schelling's work is engaging because it is realistic and riddled with examples from war and everyday life. It stands out, to me, because unlike many other works on game theory, it is truly realistic and relevant. The Strategy of Conflict reminds me to some extent of Robert Nozick's Anarchy State and Utopia because they are both filled with fanciful examples that draw out fascinating concepts and conclusions. I recommend this book to someone who is willing to think hard while reading and enjoys useful economic insights.
Reviewer: CJR (San Jose, CA), January 18, 2006



Contents:
I. Elements of a Theory of Strategy
II. A Representation of Game Theory
III. Strategy with a Random Ingredient
IV. Surprise Attack: A Study in Mutual Distrust
Appendices
Index