The Benefits Of Utilizing Tactical Screens

A few months ago, I put up a Tactical Notebook Discover post about the wisdom of utilizing tactical screens for harvesting decision-making information, but the truth is the benefits of using tactical screens are all kinds of useful if you are generally interested in being efficient with your resources.

For those who didn’t read the post, or who want a refresher, in game theory or economics, a tactical screen is a strategy or mechanism used to prevent or obscure direct competition or conflicts by creating a form of separation, uncertainty, or filtering. It can function in various ways depending on the context, but generally, tactical screens serve to:

1. Disguise Intentions or Actions: Players may use screens to hide their true strategies, intentions, or values from other competitors, keeping them in the dark about their plans. This can prevent opponents from predicting or countering moves effectively.
2. Filter Participants: In markets or negotiations, tactical screens can help differentiate or select participants based on specific qualities or willingness to take certain risks. This screening can lead to better matching of players with similar or complementary goals.
3. Create Uncertainty or Delay Responses: Screens can delay or soften direct responses from opponents by introducing uncertainty, encouraging them to take a wait-and-see approach rather than responding aggressively.

To provide you with some better context about what all that means, we should take a couple of minutes here to explore two more important concepts within game theory and economics: preferences and separated pooling.

Preferences can be neatly separated into two broad categories: Revealed preferences and displayed preferences.

Revealed preferences and displayed preferences are two related but distinct concepts in economics and behavioral science. They deal with how preferences are expressed and understood, particularly in cases where there may be a difference between what people say they prefer and what their actual choices reveal.

Revealed preferences refer to the preferences inferred from an individual’s actual choices and behaviors. The theory of revealed preferences, developed by economist Paul Samuelson, assumes that people make choices that maximize their satisfaction or utility given their budget constraints. Therefore, by observing their actions (e.g., what they buy, where they invest time), economists can deduce what their true preferences are, as opposed to the preferences they publicly project.

Pooling equilibrium occurs in situations where players or agents of different types choose the same action or signal, making it impossible for observers (e.g., employers, buyers, insurers, marketers, etc) to distinguish between these types based solely on their observed behavior. Pooling equilibria are particularly relevant in signaling games where one party has private information that the other party lacks (known as information asymmetry problems). For example, in your family court dealings, your ex and his legal team have important decision-making information that you need to make your own decisions, however they are not revealing that information to you – they are hiding or withholding it.

Characteristics of a pooling equilibrium:

1. Identical Behavior Across Types: Agents with different characteristics (types) choose the same signal or action. This makes them appear similar to the observer, even if they have different underlying attributes.
2. Lack of Distinction: Observers cannot differentiate between types based on the observable signal or action, leading them to treat different types as if they were the same.
3. Unrevealed Information: In a pooling equilibrium, the action does not convey specific information about the agent’s type, meaning there is no “sorting” based on type.

In this kind of equilibrium, all “types” send the same “signal,” meaning that the action or signal doesn’t reveal any specific information about the person type. This can lead to situations where one type may benefit from being indistinguishable from another, potentially gaining advantages such as better job offers, loans, or prices.

Consider a job market where employers can’t directly observe the skill level of job candidates. If high-skilled and low-skilled candidates choose to submit identical credentials (such as the same level of education or work experience), the employer cannot distinguish between them based on these signals alone. If both high-skilled and low-skilled individuals find it optimal to do so, a pooling equilibrium occurs, as employers are unable to infer skill levels from the observed credentials.

If you are following all this, you have likely inferred that pooling can lead decision errors on the part of those trying to understand the type of person or group of people they are dealing with.

Lack of Differentiation means players with different types do not differentiate themselves through their actions, leading others to treat them as if they are the same type. Signal Ambiguity where chosen signals do not convey any distinct information about the sender’s type, making it hard for receivers to distinguish or make decisions based on individual characteristics. And the Potential for Inefficiency because pooling equilibria can lead to inefficiencies, as individuals with favorable traits may be undervalued, while those with less favorable traits benefit from being indistinguishable.

In contrast, a separating equilibrium is when players of different types choose different actions, making their types observable to others. In our job market example, a separating equilibrium would occur if high-skilled individuals chose to obtain higher levels of education or specific certifications, thus signaling their higher skill levels to employers. In a separating equilibrium, unlike in a pooling equilibrium, different types make distinct choices that “separate” them, making it possible for observers to distinguish between them based on their choices alone.

Key Characteristics of Separating Equilibrium:

1. Distinct Signals: Players or agents of different types choose different actions or signals that correlate with their true characteristics.
2. Information Revelation: Because each type behaves differently, observers can accurately infer which type of agent they are dealing with.
3. Stability: In a separating equilibrium, no type of player has an incentive to mimic another type, as doing so would either be too costly or would not bring any additional benefit.

In sum, a separating equilibrium creates a setting where individuals with different types behave differently enough that others can reliably deduce their types based on these observable actions, facilitating better-informed decisions and more accurate market outcomes.