Random Thoughts on Game Theory

I first met Game Theory 15 years ago as a college student majoring in applied mathematics. Back then, there were so many interesting things an ambitious young student could pursue; game theory did not have my attention for a long time.

Recently, I got some spare time to pick up the book “Thinking Strategically” by Profs. Dixit and Nalebuff. At this moment when I finish reading this book, I would say this is my most pleasant intellectual experience since I left campus.

Game theory is a major topic in economic study, and is also gaining momentums in business and management education recently. I would like to go a little bit further than most of other people would feel comfortable by claiming that, game theory is the scientific research of wisdom in its rational aspect.

I happen to read Stephen Covey new book “The 8th Habit” at the same time. It reminds me Dr. Convey’s most influential old book “The Seven Habits of Highly Effective People”. People knowing game theory can immediately put the 7 habits in the context of game theory. For example, “begin with the end in mind” is nothing but the principle of “looking ahead and reasoning back”; “Think Win/Win” appeals directly to the major topic of “Prisoners’ Dilemma” in game theory, or why co-operation is a better option than applying your dominant strategy.

There is another business bestseller for quite a while, “The Tipping Point”. It is obvious that the most rigorous explanation of tipping point is in game theory: the tipping point is the boundary beyond which one equilibrium state will collapse and the system moves to a new equilibrium state.

In business, “leverage” is a widely used term; but most of cases it is mis-used. To identify the opportunity for leverage and to catch the opportunity by making the non-intuitive right decision are everything but easy. It is in game theory that leverage is best defined and only by putting it into the context of game theory can leverage be mastered.

As a professional in software industry, I am interested in software project management. Looking from the game theory point of view, we may find lot of teachings in “conflict management”, “team building” and “motivation and incentives” etc.. need to be re-examined or more precisely explored. For example, we talk about conflict resolution methods such as “ Confronting”, “Compromising”, “Smoothing”, “Forcing” and “Avoiding”, and most of the existing literature only point out those methods and the consequence of applying them. We seldom see any discussion on what method should be used in what situation and how to avoid the non-intended consequences. But those topics are really the most important concerns to practicing project managers. I believe game theory provides a great framework to analyze and finally address those concerns efficiently.

In the book “The War for Talents”, the authors advocate an “open and trusting” workplace. This is a teaching that we can also find in all the other business books. But in most of those books, the argument, if any, is based on empirical evidence. Again, game theory can provide us with real insights here. Simply speaking, an open and trusting workplace is to remove the “prison” in the “Prisoners’ Dilemma”, therefore, people can engage in cooperation instead of always adopting their “dominant strategy”, which unfortunately is not necessarily the best for the business, or for anyone as part of the business.

In business environment, “team” is a buzz word, and nobody dares to challenge it. After seeing so many bad things are carried out under the name of “team work”, every time when I talk about “team work”, I usually add something like “in its positive sense”. Among those bad things, there certainly are purely evil actions from wrecked minds, there is one phenomenon which game theory essentially indicates as unavoidable and therefore should be tolerated: “the exploitation of the great by the small (Mancur Olson)”. In “Thinking Strategically”, the authors suggest that “find a large benefactor who act cooperatively and tolerates others cheating”. The lesson here is that complete fairness may not be a proper ultimate goal, and those great should be ready to contribute more. I guess this is what we label as “noble”.

It is just encouraging to see the fine art of wisdom becomes a science. Strategy is usually associated with experience, which actually means long enough time of “trial and error”. Once again, I am convinced that so many things that are categorized as “experience” can really be gained quickly without the prohibition of time if only you know how!