Game Theory and Decision Making

Two interesting articles on game theory (as applied to LeBron James) and decision making (as applied to Uruguay vs. Ghana), both from Noah Brier.

Did LeBron James Get Played? Game Theory and the Big 3

How does the [collective decision by The Big Three to go play with each other in Miami look when analysed by a game theorist?

Consider a simple game with three players (no pun intended!) who all have to choose where to play basketball next year. They can each choose to stay in their own city or move to the city of another player. (So for the moment we leave out the option of them all going to New York or Chicago for simplicity’s sake, but I think the logic still holds fine if we expand the number of destinations.) The players get utility from the following four factors:

  1. the money they are paid in salary
  2. the chance to win a championship
  3. the quality of life in the city in which you choose to live
  4. not being perceived as a villain

[SNIP]

The optimal strategy for Bosh and Wade, I think, is both should credibly commit to going to Miami before Lebron makes his decision. This puts the maximum possible pressure on Lebron to come to Miami. Now all of the sudden, LeBron is making his decision with complete information: if he sufficiently values the chance to win a championship, he has to come to Miami also. Whereas if LeBron makes his decision first, he might choose to go to Cleveland on the expectation that there is at least some non-trivial chance that Wade and Bosh will join him there.

So this leads to the interesting question: by allowing Bosh and Wade to make their decisions first, did LeBron possibly get himself into a situation where he ended up with a sub-optimal outcome? If so, it would certainly put that ESPN special in a whole new light – not just obnoxious, but possibly even counter-productive. By committing himself to a specific timetable – and remember, the demands of the ESPN show called for absolute secrecy regarding his decision – he gave Wade and Bosh a chance to both (1) move first and (2) have a little time to think through the strategic value of moving first. So in the end, the need for the King to play to the public may have led to the King himself getting played – surely not the first time in history this has happened!

Cheating vs. Rational Rule Breaking

In something as emotional as sports, it is easy to label someone a “cheat” for breaking the rules, what if, however, you look at decisions with a cost/benefit analysis in mind? You get “rational rule breaking”:

It seems to me “cheating,” in its colloquial understanding, involves not just breaking the rules but attempting to prevent others from discovering you’ve done so.  What happened in that game [World Cup quarter final involving Uruguay and Ghana] was what I would call “rational rule breaking.”  There was no intent to deceive;  the Uruguayan player knew the only chance he had to save the game was to break the rules, and accept the penalty, and hope the Ghanaians missed the penalty kick.  True cheaters don’t wish to break the rules and accept the penalty, they just wish to break the rules and avoid the penalty.

[SNIP]

Rational rule breaking, by contrast, is done with a clear understanding of the costs and benefits and not just a willingness to be caught, but an actual positive desire to get caught because the penalty is worth preventing the outcome that will come from following the rules.

[SNIP]

Uruguay should be treating Luis Suarez as a national hero not a cheater, and we economists should thank him for a wonderful classroom example about cost/benefit analysis.

An alternate view from another economist is also available for those who still feel the pain of the Black Stars.

Why did I post these? It’s important to look at events with a critical, yet alternate point of view in order to gain insight into the human condition which, as marketers, can inform our future decision making.

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