Foundations: Games, Rationality, and Traps
In organizations, strategies and execution are interdependent. Outcomes depend not just on what you do, but on what others do, and what they expect you to do. Game theory begins where individual optimization ends. While formal solutions rarely exist for real-world situations, the framework is useful for pattern recognition at work.
Chess is not a game. Chess is a well-defined form of computation. You may not be able to work out the answers, but in theory there must be a solution, a right procedure in any position. Now, real games are not like that at all. Real life is not like that. Real life consists of bluffing, of little tactics of deception, of asking yourself what is the other man going to think I mean to do. And that is what games are about in my theory.
– John von Neumann
I don’t really play chess, but it’s a useful metaphor. The goal is not to find the perfect move, but to avoid traps or unwinnable positions, assuming the other player is rational. The earlier you recognize those situations, the more time and energy you save. A big part of this is recognizing which game you are actually in, rather than playing blindly.
In most environments, I assume people are acting rationally within their constraints. The useful question becomes: what rules and incentives shape their behavior?
In organizations, behavior follows rewards and incentives, not intentions. Cultures can settle into stable equilibria that no one explicitly wants. Skilled leaders design mechanisms where rules drive good outcomes naturally by making consequences, good and bad, unavoidable.
The classic example is the Prisoner’s Dilemma. Two prisoners each choose to cooperate (stay silent) or defect (betray). If both cooperate, they each serve one year. If one defects while the other cooperates, the defector goes free and the cooperator serves five years. If both defect, they each serve three years. Assuming no trust or coordination, the rational choice is to defect, leaving both worse off.
The only satisfying solution to the prisoner’s dilemma is to avoid prisoner’s dilemmas.
– William Poundstone (Prisoner’s Dilemma)
... continue reading