Game Theory in Business, Life and Beyond
- Brainz Magazine
- Mar 31, 2021
- 4 min read
Written by: Dr. Hynd Bouhia, Executive Contributor
Executive Contributors at Brainz Magazine are handpicked and invited to contribute because of their knowledge and valuable insight within their area of expertise.
Mathematics is part of our daily lives. Surprisingly enough, we use mathematics in everything we do — setting up our monthly budget, grocery shopping, our way of thinking, inner logic, organization of our thoughts, solving complex problems, and daily management of our business and companies. And of the multiple theories, Game Theory seems to be the winner. It explains the strategic interactions between agents or players in any real-life situation — the relationship between colleagues, family members, friends, and people in general.
Discovered in 1920, Game Theory became a base tool for microeconomics and for the modeling of zero-sum games in 1944. More research and 11 Nobel prices put the theory on top of economic thinking. It is applied not only to social science, political science, international relations, biology but also in business and organizations. In addition, Game Theory explains frequently seen behaviors in human relations. Particularly, the 1950 prisoner dilemma is the most popular as it simplifies the understanding of treason in business and our personal relationships.
What is the prisoner dilemma? It illustrates the situation where two players find an interest in cooperating, but where, in the lack of communication. Each one would choose to betray there when the game is played only once. Like in real life, we get only one shot in an acute situation where decisions can be definite. The question is, why? Well, because if one of the players betrays the other, the cooperator is then strongly penalized. If both players betray, results will be less favorable compared to a joint cooperation.
Understanding People’s Behavior through the Prisoner Dilemma
Thus, the prisoner dilemma mirrors people’s behavior around us, whether in the business, among friends or family members. The concept is used in psychology to treat media rumors, in tariffs strategy, in business competition, and many other domains. To better apprehend its relevance, Princeton Professor Tucker gave the example of two partners in crime kept in two separate cells. They were both presented with three options:
If only one of them denounce the other, he gets freed while the other receives the maximum sentence of 10 years;
If they both denounce each other, they get both 5 years sentence;
If they both refuse to speak, they get the minimal sentence of 6 months for lack of relevant information.
This theory led to several economic games testing the players' economic rationale and their possibility to reach a Nash equilibrium improving their welfare within the Pareto optimum without deteriorating others’ situation. Besides mathematics and economics, the prisoner dilemma is pertinent to psychoanalysts, ecosystems’ scientists, biologists, and political science specialists. It is also used in some philosophy paradigms and cognitive science.
Prisoner dilemma is therefore applied in any field whenever two or more agents have a common interest in cooperating, but an even more important interest in not doing so is one default, while there is no way to constrain the other to cooperate. For instance, these are two companies in the same market where one decides to increase the price and inflate the returns. If they both increase the price, they will both lose. In another setting within a team, one member could betray the boss—even wrongly, as he can see himself jumping the ladder hierarchy. Similar situations emerge among associates, partners, and investors in the same fund or structure. There is often a temptation to use similar tactics. In the world of information, the competitiveness in the media business is similar to the prisoner dilemma. Certain media give a privilege to information speed before quality, which generated errors pooling phenomena.
This prisoner dilemma explains some bizarre behavior between a boss and a confused subordinate, or a demanding client, a relationship with a toxic person, jalousie, and negative acquaintances. They all lead to the same point of betrayal and hatred, and negative energy, in addition to a spiraling destructive trend and confusions. But once we understand the logic behind the prisoner dilemma, betrayal can be predicted before it even happens. You become a master of your own doing and expectations in your business. This is why any entrepreneur or business owner needs to protect himself by keeping his moves secret and mastering his or her surroundings—risk analysis and a thorough strategic plan with a clear understanding of their competitor.
We live in a competitive world where treason had become a time and space transcending reality. In fact, treason found a comfortable sit in all aspects of our lives: in our homes, streets, offices, cities, structures, and the most powerful organizations. If TV shows and series are getting more fascinating, they reflect this ever-growing phenomenon where cruelty, lies, and fakeness have taken over our societies. Where did the values and manners go? Humanity has been high-jacked by overblown egos and “I want everything only to myself, and now” by selfishness and cupidity.
Nevertheless, this planetary meditation dictated by the pandemic has awaken that lost compassion in people’s hearts and showed us back the path to goodness, sharing, serenity, love, and abundance.
A positive vision of a better world sheds light on more grown-up and conscious people and business actors!
Dr. Hynd Bouhia, Executive Contributor Brainz Magazine
Dr. Hynd Bouhia has cumulated more than 20 years of professional experience in high-level and leadership positions, covering investments, financial structuring, entrepreneurship, and sustainable development strategies. Hynd Bouhia was nominated by Forbes among the 100 most influential women in the world in 2008 and among the most influential women in Business in the Arab World in 2015 and honored as a member of the Johns Hopkins Society of Scholars in 2018.
With a Ph.D. from Harvard University (GSAS 1998), an Engineering degree from Ecole Centrale Paris (1995), and a Master from Johns Hopkins SAIS (2000), Hynd Bouhia started her career at the World Bank in Washington before joining Morocco’s Prime Minister as an economic advisor. She was appointed in 2008 as the Managing Director of Casablanca Stock Exchange. After that, she structured and managed investments and venture capital funds.
As the CEO of Strategica, she advises entrepreneurs, companies, and institutions on economic intelligence, sustainable finance, and growth strategies. Dr. Hynd Bouhia is the author of the motivational book for women entitled "Africa Girl, African Woman": How agile, empowered and tech-savvy females will transform the continent for good."
.jpg)