Commitment

Game Theory · Axiom Academy

Understanding the strategic value of commitment in sequential games 1. The Strategic Value of Commitment Commitment is a strategic action that constrains your future choices. By publicly committing to an action before your opponent moves, you can influence their decision-making in your favor. Consider a market entry game where an incumbent firm faces a potential entrant: Without commitment: The entrant enters because they know the incumbent won't start a costly price war With commitment: The incumbent commits to aggressive capacity expansion, making price war credible and deterring entry 2. Burning Bridges: Making Threats Credible A key insight in game theory is that limiting your own options can sometimes improve your outcome. By "burning bridges" or eliminating attractive alternatives, you make otherwise incredible threats credible. Classic Example: Cortes Burning His Ships When Hernando Cortes invaded Mexico in 1519, he ordered his ships burned. This seemingly irrational act eliminated the option to retreat, committing his troops to fight with maximum effort. The Aztecs, observing this commitment, recognized the invaders would fight to the death. Without commitment: Troops might retreat if battle goes poorly (not credible threat to fight) With commitment: No retreat option makes threat to fight to the death credible Result: Opponent more likely to negotiate or surrender 3. First-Mover Advantage Through Commitment

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