How to get what's available: Game theory
Table of Contents
I am fascinated by how scientists can explain the world through mathematical formulas, theories, and laws. In contrast, formalizing the study of humanities is rare.
Charlie Munger emphasized the importance of combining numbers and psychology in business. Numbers provide precision, while psychology deals with the unpredictable nature of human behavior.
The same principle applies to game theory, which involves mathematical formulas and probabilities but is also influenced by external randomness.
Principles
Game theory is a branch of mathematics that studies decision-making when two or more “players” have conflicting interests. It analyzes strategic interactions between rational decision-makers in various fields, like economics, political science, and biology. Game theory provides a framework for understanding how people will make choices when trying to achieve their goals. It helps to predict the outcome of actions based on assumptions about other people’s behavior.
Questions
Who are the players in the game?
I listed all known parties who had something valuable for me and my team –stakeholders, leadership, and our internal customers. I also listed similar parties with something to gain from me and my domain. This list grew to a detailed stakeholder and customer map with levels of importance.
What are the rules of the game?
I could list the rules by knowing the so-called “players” involved in the game.
- With whom can I interact directly? Where do I need to use “messengers”?
- How are decisions being made, and who has the final say?
- What are the processes and schedules for gaining valuables?
- What is the de jure and de facto power structure?
What does each player value, their motivation?
Short descriptions of drivers that make each stakeholder move and what can be used to leverage these motivations. Eventually, this can be presented as a persona that is helpful in communication and decision-making.
For example, some stakeholders are motivated by timely deliveries, some by beauty and external pressure.
What resources are available?
For me and others
Financial, intellectual, power and leverage are the primary business-driving resources. I had my team with their skills, capabilities, and available time. Also, I controlled their priorities and allocations. Most of my team’s competencies were unknown and not valued by others.
My manager owned the budget and had the final say. My stakeholders had projects with additional budgets. They had collective power over my team. Also, I could leverage some of the task’s completion by collaborating with other teams.
What are possible outcomes?
By knowing players’ motivations and available moves, we can define possible outcomes while each of them acts according to their self-interest. Chess or a similar competitive game is the best analog – each piece has a range of moves to corner the other side’s king. As a resource, each piece can threaten and capture other pieces from various distances and patterns. The range of moves defines the range of outcomes – what is available. You can attain valuables only by mastering the rules and combining players’ motivations.
Equilibrium
How are reasonable parties acting to attain the goals in direct competition? How do we exit the zero-sum scenario and get to the equilibrium?
By combining each player’s motivations, we work together for the common good without threatening other’s goals. This is what John Nash’s bar scene from “A Beautiful Mind” is showing. This is one basis for the assumption that each player acts rationally. The only way to act rationally is to disclose interests and motivations and reiterate rules – if possible. In my scenario, I had to make explicitly clear to my stakeholders the valuables I possessed and had to offer for the ultimate benefit of the organization.