Strategic Decision Making

Managerial Economics Written Assignment

Name: Sarayu Sampeenong

University Number: 3035507356

Part I: Reflection

The most interesting topic for me about this course is the game theory in strategic decision making. The concept of prisoner’s dilemma, Nash equilibrium, and sequencing can be really useful for real-life decision making.  However, we cannot rely only on the concept in making decision because in real-life many unexpected things can happen, but those concepts can help us form the base of our rational thinking to make a rational decision.

In my opinion, the most difficult concept to understand is the concept of marginal cost. This is because when I worked on the pricing for the products and/or services in the past. I will use the figure of the average total cost as the cost to decide on pricing. When I learned about the concept that in a competitive market, the optimal supplies quantity is when marginal cost of the last unit equal to product price. I was a little bit confused. However, when I reviewed the concept again, the concept became convincing to me.

To be honest, it was difficult for me to understand the logic behind Nash equilibrium too, but it became clearer when we went through all the real-life observations.

Learning points

The first surprising but convincing conclusion is the diamond paradox. It was an eye-opener observation for me and lead me to have a better understanding about the how supply and demand determine the value and price of things.

The second conclusion I really appreciate is the overall conclusion of game theory about knowing the other player’s information and rationality to determine the other player’s choices and responses. It is a straightforward and useful conclusion that applicable in many real-life situations.

Part II: Discussion questions

My first question is about the concept of Nash equilibrium - how possible is it in reality for competing players to stop at the stable outcome? In real-life competition, are they going to be satisfied with the result that nobody wins or lose?

My second question is about the phenomenon of sharing economy. How will the sharing economy shape our economy in the future? If people rely more on the services like Airbnb and Uber will it make the demand and supply of the real-estate industry and automobile industry change dramatically? And How?

My last question is how we can crack the emotional value people give to the products or services with the economic concept. For example, how the middle luxury products like Coach bags or Longchamp bags that don’t have exceptional quality or artisanship when compare to the non-luxury brands can cost so much higher with the “brand” element alone.

Part III: Supplementary materials

The diminishing marginal value

I have my personal observation about the concept of diminishing marginal value. In my observation, I found that the concept can be used to explain how much people will value somethings that happen in life but only to some degree. Below are some examples from my personal life.