nuclear deterrence policy and responsible retailing: brad s. krevor, ph.d. schneider institute for...

Nuclear Deterrence Policy and Responsible Retailing:

Brad S. Krevor, Ph.D.Schneider Institute for

Health Policy,The Heller School for

Social Policy and Management,Brandeis University

The application of game theory to predict outcomes among cooperating and non-cooperating parties as a paradigm for Responsible Retailing

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I. Game Theory

“Game theory is the study of interactive decision-making in the sense that those involved are affected by their own choices and by the decisions of others.”

~ Larry Samuelson

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I. Game Theory


~ Larry Samuelson

“Games are the theoretical models of conflicts of interest”

~ C. Thomas

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I. Game Theory


~ Larry Samuelson

“Games are the theoretical models of conflicts of interest” ~ C. Thomas

Game theory analyzes interactions between agents and formulates hypotheses about their behavior and final outcomes

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I. Game Theory


~ Larry Samuelson

“Games are the theoretical models of conflicts of interest” ~ C. Thomas

Game theory analyzes interactions between agents and formulates hypotheses about their behavior and final outcomes

Game theory can be used to study how parties will behave . . .

. . . or how parties should behave

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I. The “Vocabulary” of Game Theory

Games may be “co-operative” ( in which players work together; or players merely share, or signal, information) or “non-cooperative”

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“Players” are assumed to act individually rationally, i.e. they will choose outcomes which are in their own best interest

Games may be “co-operative” (in which players work together; or players merely share, or signal, information) or “non-cooperative”

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Players may act “co-operatively” (doves) or non-cooperatively” (hawks): but even when acting co-operatively, players are acting individually rationally, i.e. are motivated by self-interest

Games may be “co-operative” (in which players work together; or players merely share, or signal, information) or “non-cooperative”“Players” are assumed to act individually rationally, i.e. they will choose outcomes which are in their own best interest

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Players may act “co-operatively” (doves) or non-cooperatively” (hawks): but even when acting co-operatively, players are acting individually rationally, i.e. are motivated by self-interest

“Utility” or “Pay-off” are the value of an outcome measured in units


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Players may act “co-operatively” (doves) or non-cooperatively” (hawks): but even when acting co-operatively, players are acting individually rationally, i.e. are motivated by self-interest“Utility” or “Pay-off” are the value of an outcome measured in unitsGames may be zero-sum (winner/ loser) or non zero-sum


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II. Examples of Games

Prisoner’s Dilemma: 2 people who have committed a crime have been caught. In the absence of proof of guilt, the police offer this choice:

TV version

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II. Examples of GamesPrisoner’s Dilemma: 2 people who have committed a crime have been caught. In the absence of proof of guilt, the police offer this choice:

TV version

Original version:a. “If you confess and your accomplice

fails to confess, you get the minimum” (payoff= -5)

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b. “If you fail to confess but your accomplice confesses, you will be convicted and receive the maximum sentence ” (payoff= -15)

Prisoner’s Dilemma: 2 people who have committed a crime have been caught. In the absence of proof of guilt, the police offer this choice:

TV versionOriginal version:a. “If you confess and your accomplice fails to

confess, you get the minimum” (payoff = -5)

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c. “If you both confess, then you both will be convicted but not receive maximum sentences” (payoff= -8)

Prisoner’s Dilemma: 2 people who have committed a crime have been caught. In the absence of proof of guilt, the police offer this choice:TV version

Original version:a. “If you confess and your accomplice fails to

confess, you get the minimum” (payoff = -5)b. “If you fail to confess but your accomplish

confesses, you will be convicted and receive the maximum sentence” (-15)

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d. “If neither of you confesses, then you will be convicted of possessing stolen property and will receive a certain conviction” (payoff= -1)

Prisoner’s Dilemma: 2 people who have committed a crime have been caught. In the absence of proof of guilt, the police offer this choice:TV version

Original version:a. “If you confess and your accomplice fails to

confess, you get the minimum” (payoff = -5)b. “If you fail to confess but your accomplish

confesses, you will be convicted and receive the maximum sentence” (-15)

c. “If you both confess, then you both will be convicted but not receive maximum sentences” (-8)

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II. Examples of GamesPrisoner’s Dilemma: 2 people who have committed a crime have been caught. In the absence of proof of guilt, the police offer this choice:

TV versionOriginal version:

a. “If you confess and your accomplice fails to confess, you get the minimum” (payoff = -5)

b. “If you fail to confess but your accomplish confesses, you will be convicted and receive the maximum sentence” (-15)

c. “If you both confess, then you both will be convicted but not receive maximum sentences” (-8)

d. “If neither of you confesses, then you will be convicted of possessing stolen property and will receive a certain conviction” (-1)

Best payoff (-1) is not to confess (d) but this risks payoff of –15 (b). Confession brings payoff of either –5 (a) or –8 (c) but avoids –15 (b)

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II. Examples of Games (cont.)

Stag Hunt: Killing a stag, which requires 2 players, has a high utility (payoff = 10). A hare can be captured by only 1 player but has a low utility (payoff = 2). If 2 players attempt to trap a hare, however, the hare will be scared off and escape.

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Stag Hunt: Killing a stag, which requires 2 players, has a high utility (payoff = 10). A hare can be captured by only 1 player but has a low utility (payoff = 2). If 2 players attempt to trap a hare, however, the hare will be scared off and escape.

Both players agree to hunt the stag and separate in search of the stag. Each then has the opportunity to stick with the plan (dove) or deviate from the plan (hawk).Is it in the interest of either player to deviate from that agreement and hunt the hare?

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Stag hunt: Killing a stag, which requires 2 players, has a high utility (payoff of 10). A hare can be captured by only 1 player but has a low utility (payoff of 2). If 2 players attempt to trap a hare, however, the hare will be scared off and escape.

Both players agree to hunt the stag and separate in search of the stag. Each then has the opportunity to stick with the plan (dove) or deviate from the plan (hawk). Is it in the interest of either player to deviate from that agreement and hunt the hare?

If one player chooses to deviate (Hawk), it in the interest of that player that the other player not know of the deviation, since the hare will escape if both players try to capture it.

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Nash Equilibrium

A “Nash Equilibrium”: A collection of strategies, one for each player, that are mutual best replies in the sense that each agent’s strategy is optimal given the strategies of the other agents

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Nash Equilibrium

A Nash Equilibrium is a collection of strategies, one for each player, that are mutual best replies in the sense that each agent’s strategy is optimal given the strategies of the other agents

A Nash Equilibrium demonstrates that no player has an incentive to deviate from his strategy given that the other players don’t deviate

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Game Theory Applications

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II. Economic Applications

Convenience Store Game

Store A is considering entering a market (or introducing a product) which is served (or produced) exclusively by Store B, and whose total value = 4. If A enters the market, B can either acquiesce or retaliate.

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If A declines to enter, A’s payoff = 0 and B’s payoff = 4

Convenience Store GameStore A is considering entering a market (or introducing a product) which is served (or produced) exclusively by Store B, and whose total value = 4. If A enters the market, B can either acquiesce or retaliate.

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If A enters the market and B acquiesces, they share the market and each receives a payoff of 2



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If A enters the market and B acquiesces, they share the market and each receives a payoff of 2

If A enters the market and B retaliates with severe price reductions, they each receive a payoff of –4



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II. Environmental Applications

The cost to a player (e.g., an industrial plant, a state or a nation) of abating the production of pollution is very high

Applied to regional, national and international policies (laws or treaties) to reduce pollution, regulate fishing rights, etc.

Freeloader phenomenon:

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However, the contribution of that player to the problem of the region (or country or world) is marginal; and the benefit to that player for abatement may be marginal or 0.

Applied to regional, national and international policies (laws or treaties) to reduce pollution


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However, the contribution of that player to the problem of the region (or country or world) is marginal – as may be the benefit to that player for abatement

optimal payoff: the pollution-creating problem is abated . . . with other players absorbing all or adisproportionately higher percentage of the

cost!

Applied to regional, national and international policies (laws or treaties) to reduce pollution


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II. Military Applications

War Games

intensive development following WWIIzero-sum games: winners and losersnon-cooperating game

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II. Military Applications

War Games

intensive development following WWIIzero-sum games: winners and losersnon-cooperating game

M.A.D.: Mutually Assured Destruction-- a Nash Equilibrium: neither player has an incentive to deviate (i.e., use nuclear weapons) unless the other player deviates

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II. Military Applications (cont.)

Nuclear treaties

Freezing, or reducing, nuclear arsenals deemed to be desirable -- possible only if both sides act

Mathematica group

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II. Military Applications (cont.)

Nuclear treaties

Rothchild and Waterloo: potential disadvantage of co-operation

How does one signal information when communicating what you are willing to agree to in a treaty gives the other side a bargaining advantage?

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III. Structural Problems of Responsible Retailing

What are the “Structural Problems” of Responsible Retailing – the obstacles at the national (and state) level, at the level of individual communities, and at the level of individual stores -- which impede efforts to prevent underage sales?

Before applying game theory principals to Responsible Retailing:

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III. Structural Problems at the State (and National) Level

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Structural Problems: State/ National

Advocates and Voluntaries

Public Health Depts. Foundations

CSAP

AGs

EnforcementAgencies

Retailers

Wholesalers and

Distributors

Producers

1. Divergent objectives of RR stakeholders

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CSAP

AGs

EnforcementAgencies

Retailers

Wholesalers and

Distributors

Producers

1. Divergent objectives: profit vs. public interest

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2. Perceived motives: motives attributed to some stakeholders (players) by other stakeholders (players)

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• “We are being asked to serve as agents of public health.” (e.g. “No Buts”; criticism of “We Card”)

Retailers

Wholesalers and

Distributors

Producers

2. Perceived by retailers

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• “We are being asked to serve as agents of public health.” (e.g. “No Buts”; criticism of “We Card”)

• “Tobacco and alcohol advocates are neo-prohibitionists.”

Retailers

Wholesalers and

Distributors

Producers

2. Perceived by retailers

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• Responsible retailing is only PR



CSAP

AGs

2. Perceived by public health/ advocates

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• Responsible retailing is only PR to buy respectability

• RR always < marketing!



CSAP

AGs


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• Matt Myers, Campaign for Tobacco-Free Kids



CSAP

AGs




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• Enforcement agencies aren’t really committed!



CSAP

AGs

• Matt Myers, Campaign for Tobacco-Free Kids

• Ed Sweda, Jr. TCRC*




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3. Enmity and mistrust:

Unwillingness to work together

AMA

“anonymous” researcher

PA sales certification program

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Brandeis compliance project:

specific protocol for vendors

if followed, 1.5 million premature deaths will be avoided

non-compliance rate of 40% - 50%

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too busyavoid confrontationfollowing protocol doesn’t work: it won’t solve the problem

vendor explanations:




specific protocol for vendors

if followed, 1.5 million premature deaths will be avoided

non-compliance rate of 40% - 50%

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too busyavoid confrontationfollowing protocol doesn’t work: it won’t solve the problem

Vendors = Family Physicians

Protocol = PHS Clinical Guidelines

HEDIS: 50% - 60% of patients not counseledVendor explanations:


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Retailers: not in corporate culture

Public health community: unwilling

Enforcement community


4. Absence of Research

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Structural Problems: Community

1. Compliance rates are overestimated

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Brandeis EAV study-- double vs. single inspection protocol


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Brandeis EAV study-- double vs. single inspection protocol

TobaccoInspections

Baseline 1Compliance

Baseline 2Compliance

CompliantB1 & B2

Florida 81% 86% 66%

Iowa 43% 51% 33%


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Brandeis EAV study

DiFranza UMASS study: pairs of inspectors, identical in all but one respect, attempt purchases of tobacco (in alternating order) in 160 stores in 8 Massachusetts communities, all with measured compliance rates > 90%


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2. Policies do not translate into compliance

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Christine Milliken, NAAG: “tobacco-ization of alcohol”


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Attorneys General Consumer Protection initiative:“alcohol-ization of tobacco”


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There must be strong, explicit policies; but these policies tend not to be performed


Attorneys General Consumer Protection initiative:“alcohol-ization of tobacco”


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Walgreens age verification:

• Before AVC, ID everyone < age 30

… low compliance


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• Before AVC, ID everyone < age 30

After AVC, ID everyone < age 40, i.e.a 17 yr old looked > 30 but not > 39

… low compliance


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Then, ID everyone, i.e. a 17 yr old looked > 40, ora clerk will be more willing to ID a 17 yr old if the clerk also must now ID a 60 yr old!


Before AVC, ID everyone < age 30After AVC, ID everyone < age 40, i.e.

a 17 yr old looked > 30 but not > 39


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3. Paradox of enforcement

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Enforcement is sine qua non of compliance – but enforcement has limits

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Enforcement shifts illegal sales from major chains to independent retailers (MN EAV study)

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Compliance with sales to minors laws also shifts acquisition by minors from commercial to social sources

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“Moving” vs. “stationary” targets

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“Moving” vs. “stationary” targets

Even at 90% - 95% compliance, minors can purchase alcohol and tobacco

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Structural Problems: Store

1. Clerk characteristics

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Turnover > than frequency of inspections

No incentive to comply

Little or no loyalty to employer

Young clerks more apt to sell

Willful collusion


1. Clerk characteristics

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EAV study:


Inconsistency of store compliance

multitude of individual attitudes determines whether clerk adheres to store policy

2. Clerk, not store policy, predictive of store compliance

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Challenge of Responsible Retailing: How do stores produce organizational and behavioral change?


EAV study:

Inconsistency of store compliance

multitude of individual attitudes determines whether clerk adheres to store policy


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Challenge of Responsible Retailing: How do stores produce organizational and behavioral change?

Autumn Thomas: Identify new corporate models



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Big Mac and Large Fries? Yes, Sir!

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But could you first step on the scale, sir? … and show me your cholesterol report?


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“I’m so sorry. …But could I interest you in a Diet Coke and Chicken Sandwich?”


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Also:“The person who seeks a job at McDonalds may well be different in many ways from the person who seeks a job at ABC Wine and Spirits or at Store 24.”

Bill de Jong, Higher Education Center

McDonalds has no confrontation!


3. Aversion to confrontation

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IV. Game Theory Applications: “Learnings” for Responsible Retailing

1. Pollution abatement models2. Convenience store models3. Prisoner’s Dilemma 4. War Games

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Learnings from Game Theory (cont.)

1. Pollution abatement models

“abate” = make investments in Best Practices; “player”=retailer

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In absence of enforcement (penalties), the problem will persist

1. Pollution abatement models“abate” = make investments in Best Practices; “player”=retailer

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No incentive for 1 player to abate problem unless all players take similar measures. Abatement may actually cause competitive disadvantage


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No incentive for 1 player to abate problem unless all players take similar measures. Abatement may actually cause competitive disadvantage

“Freeloader effect” will occur if some stores (typically large chains) invest in abatement while others do not. Only abatement by all players will eliminate free-loader effect


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What would be the incentive (payoff) to remain in the market, or to withdraw from the market, if each player were forced to incur the cost of implementing comprehensive responsible retailing practices?

How many “casual” players would withdraw?

2. Convenience store models

Replace “enter market” with “remain in market”

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Higher cost for each remaining player may boost revenues and profitability by concentrating market

What would be the incentive (payoff) to remain in the market, or to withdraw from the market, if each player were forced to incur the cost of implementing comprehensive responsible retailing practices?

How many “casual” players would withdraw?

2. Convenience store models

Replace “enter market” with “remain in market”

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3. Prisoner’s Dilemma

The best possible outcome in this non-cooperating game is worse than could be achieved through co-operation

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4. War Games

co-operative solutions can be produced in non-cooperative games: acting out of individual self-interest, diverse stakeholders can arrive at a co-operative solution

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4. War Games

co-operative solutions can be produced in non-cooperative games: acting out of individual self-interest, diverse stakeholders can arrive at a co-operative solution

Responsible retailing is not an irreconcilable “structural conflict”: co-operative efforts to establish responsible retailing practices can be a “best strategy” – a Nash equilibrium

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5. Nash equilibrium: A collection of strategies, one for each player, that are mutual best replies in the sense that each agent’s strategy is optimal given the strategies of the other agents

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Best strategy for public health agencies/ advocates:

given a) private stakeholder propensity to lobby

to keep penalties for non-compliance low, and

b) community and judicial lassitude re: underage sales . . .

5. Nash equilibrium

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Best strategy for public health agencies/ advocates:

5. Nash equilibrium

is to shift social norms: activism to heighten public concern so as to produce enhanced regulatory, enforcement, judicial and retailer actions.

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Best strategy for regulatory and enforcement agencies:

given a) public health and advocacy pressure to

reduce underage sales / use of tobacco and alcohol products, and

b) retailer profit motive (i.e. unwillingness to incur the costs of abatement voluntarily and without all players also absorbing those costs)…

5. Nash equilibrium

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Best strategy for regulatory and enforcement agencies:

5. Nash equilibrium

is to conduct frequent enforcement inspections (and consumer protection actions).

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Best strategy for retailers and retail associations:

given a) public health and advocacy pressure

for retailers to reduce underage sales, and

b) frequent inspections by enforcement agencies …

5. Nash equilibrium

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Best strategy for retailers and retail associations is to:

5. Nash equilibrium

i. invest in Responsible Retailing practices so as to avoid fines/ license suspensions and Attorney General consumer protection actions, and

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i. invest in Responsible Retailing practices so as to avoid fines/ license suspensions and Attorney General consumer protection actions, and

5. Nash equilibrium

Best strategy for retailers and retail associations are to:

ii. Work at both the state and community level to insure that all retailers comply with high Respon-sible Retailing standards so as to eliminate the competitive disadvantage caused by the free-loader effect

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V. Fall-Out from Non-Cooperation

Non-Standardization of IDs

• EAV and uniformity of codes

• MA license

“only (this state) license is accepted”

“Affirmative defense” in OH, CT and NY

1. Policy

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1. Policy

Non-Standardization of ID

Harsh penalties without remedial actions(Wagenaar principle)

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1. Policy


Harsh penalties without remedial actions

Health component in clerk/ server training

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1. Policy




Possession laws/ cops and shops

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1. Policy




Possession laws/ cops and shops

Parental role

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2. Allocation of resources


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Duplication e.g. New Mexico retailer training

inconsistencies between tobacco and alcohol laws

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Duplication

Enforcement a. with what frequency? b. saturation or selective? c. all stores equally? d. re-inspections? e. is tobacco a proxy for alcohol?



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Duplication

Enforcement

Retailers don’t co-operate



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VI. Summary

1. Game theory illustrates that:

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VI. Summary

Outcomes for each stakeholder are worse through non-cooperation


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Acting out of their own self-interest, stakeholders can arrive at co-operative solutions—even in non-cooperative games.

VI. Summary

Outcomes for each stakeholder are worse through non-cooperation


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The Nash Equilibrium for stakeholders involves efforts to shift social norms, aggressive enforcement and universal adherence to comprehensive RR practices

VI. Summary

Outcomes for each stakeholder are worse through non-cooperationActing out of their own self-interest, stakeholders can arrive at co-operative solutions


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VI. Summary

2. Structural problems of RR exist at the level of store, community and state (and nation)

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No single stakeholder, acting individually, can eliminate these structural problems

VI. Summary


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Acting co-operatively (i.e. working together; or, at very least, sharing information), diverse stake-holders can produce co-operative solutions

VI. Summary

No single stakeholder, acting individually, can eliminate these structural problems


Nuclear Deterrence Policy and Responsible Retailing:

Brad S. Krevor, Ph.D.Schneider Institute for

Health Policy,The Heller School for

Social Policy and Management,Brandeis University

nuclear deterrence policy and responsible retailing: brad s. krevor, ph.d. schneider institute for...

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