It was approaching 1pm on Friday and I was due in the city for some afternoon meetings. Having finished off a couple of emails, I checked my watch and had good time to catch the ferry across the harbour. I grabbed my bag and headed off on a 10 minute walk to the wharf. 3 minutes out the door I was about to cross a side street when a car came hurtling out of a car park, but 2 steps in front of me, took out a white van travelling along the street and then crashed into a café on the other side of the street. It was dramatic stuff, the van getting lifted into the air and spun around 180 degrees. The dust and explosion of the crash, the drama of movies and the adventure of games.
One might be tempted to think that we are all conscious beings, the world the result of our individual interests and co-ordinated outcomes, but there’s a critical catch even more profound than chaos and that creates outcomes that none of us necessarily desire.
Less dangerous and complex than walking around driving cars coming out of car parks is the simple act of walking on the foot path. If everyone were to stand still, I could easily manoeuvre my way through the crowd. But as soon as more and more people start moving things get a little more interesting, a little more risky and a little more unpredictable. The chances for collision mount and things move from the mere tactics of walking to the more strategic. Moves are planned ahead, we look for people 4 and five away to find our route. It becomes edgy and we begin to behave in new ways, modifying our intent, beliefs and tactics along the way .
Game theory is much more than the way we design games. Rather it is the study of strategic decision making, used in economics, political science, biology, psychology and increasingly computer science. The theory’s father is widely regarded as John von Neumann who published “Theory of Games and Economic Behaviour” in 1944. Whilst the ocean wants to be flat, seeking like everything else in the universe, equilibrium, there are more subtle forces working against this plan. Waves, wind, heat, themselves seeking their own equilibrium, conspire to disrupt the balance and the world unfolds. By understanding these points of disruption we begin to understand why things are the way they are and why people behave as they do. When it comes to explaining how everything works there are few theories as profound as game theory. It is so powerful that ten game-theorists have won the Nobel memorial prize in economics. Applying a gaming filter to our enquiry into the behaviours of people and people based systems can help us understand the forces at play when people take decisions and act.
Game theory helps us structure our approach into behavioural analysis. It defines the players of the game, the information and actions available to each player at each decision point and the payoffs for each outcome. These are used along with a solution concept to deduce a set of equilibrium strategies for each player, such that no single player can profit by unilaterally deviating from their strategy.
Whether we think about our banking customers, their journeys of challenges and the development of financial muscle or the lady hurtling across the road there is much to be gleaned. “What was she doing?”, “Why did she do that?” These were the questions everyone began asking as the car lay crumpled into the wall , the emergency services arrived and my details taken down in the constable’s notebook for a statement. The game played out, more actions were taken, some lessons were learnt whilst others were left till next time.
Darwin had some insights into how we all got here and where we may go. Chaos theory can help explain some of what happened as I embarked on a simple mission to go to a meeting. But Game Theory provides us with a most useful framework for determining the playing out of life and is why we have built a business in its application.