Good leaders use game theory to shape culture
We must recognize that game theory and leadership naturally go together. If we expect that people are rational, we have to expect that they HAVE TO be selfish. To change that, leaders need to change the game or change the culture.
The Prisoner’s Dilemma
You might be familiar with the prisoner’s dilemma, a staple of game theory. The classic example involves banks and robbers, but we also see it all of the time in product pricing. If two competing firms both keep prices high, both get roughly 50% of market share and both succeed. If one lowers their price, that firm gets a much higher payout and the other potentially goes out of business. If both lower prices, a price war ensues and both firms lose a large amount of profit due to underpricing.
If you consider yourself a good person, you may be surprised that the most rational individual choice for both firms in the prisoner’s dilemma is to take advantage of the each other. The dominant strategy, or the action that each should take regardless of the other’s choice, is to lower prices. That way each gets the best outcome regardless of the other firm’s decision. Win big or at least ensure not losing completely.
Collaboration and common good are discouraged in ‘rational’ action games. Of course in this case collaboration is illegal in order to protect consumers. Regardless, the implications seem dark.
The tragedy of the commons
Game theory provides a way to conceptualize how rational people navigate personal and group decisions in competitive situations. In many ways, it is at the core of strategy. Game theory helps leaders plan actions based on anticipated competitor choices. The above example describes two corporations trying to decide whether to work together or to undercut each other’s pricing. It could also easily portray coworkers deciding whether to cooperate as a team or compete for personal recognition and annual bonuses.
This effect is called the tragedy of the commons: without intervention such as property rights individual farmers all overgraze the common areas because if they don’t, others will. Firms undercut each other’s prices, we all contribute to global warming, and teammates don’t contribute fully due to this effect.
The important theme here is that when people make rational individualistic decisions, it usually results in losing the best option for the group over the long term. It isn’t worth a corporation taking significant losses to produce fewer greenhouse gasses if everyone else ignores global warming. It isn’t worth one hiker picking up litter when everyone else drops their trash. It isn’t worth taking the blame for a bad decision if no one else will own up to their mistakes on your team.
Hopefully, you are beginning to see how this is a leadership problem.
How leadership can use game theory to help teams
So what can we do as leaders? First, we must recognize that solving problems caused by game theory falls on leadership. No one else is in a position to fix these tragedy of the commons issues. If we expect that people are rational, we expect that they HAVE TO choose the selfish option unless we change the game.
An example authors Brian Christian and Tom Griffiths use in Algorithms to Live By is the practice of encouraging employees to take vacation time. Some companies have decided to provide unlimited vacations in a bid to get employees to live well-rounded lives, thus becoming more productive at work. The problem is that employees want to take as much time off as they can while taking just a little less than their coworkers. This maximizes time off while avoiding looking like a slacker or receiving poor performance reports. Like two firms in a price war, this logic leads to an eventual result of zero time off for everyone!
So, what options do you have as a leader?
1. Change the Game
Christian and Griffiths point out that if employees above answered to a boss who had a clear policy of severely punishing people for not taking the maximum allowable vacation, people would optimize for more time off. They could trust that everyone else would also take their PTO and they would not look like slackers. Often leaders want to sweeten the pot, but paying more for people to take time off does not change the dominant strategy of “just a little less than others.” Offering extra money for people to take vacations would not allay the fear of looking like they lack commitment. Instead, leaders sometimes need to change the game to change the dominant strategy. Tax CO2 emissions enough, and corporations will fall in line. Have employees pay money back for unused vacation, and fewer people will worry about their reputation. It becomes irrational to lose money for not following the vacation policy.
Note, that even the best intended intervention often fails due to the systems nature of teams and organization. The rules you make need to change the paradigm of your organization, or people will find creative ways to circumvent them! Learn more about systems thinking and leadership here!
2. Change the Culture
Hopefully, you are thinking, “Ok, but I don’t want to go about making life worse for everyone until they have to do what is best for the team!” If changing the game, that is making the first option less appealing, does not make sense in your case, consider changing your culture. One thing philosophy and religion have given humanity is shared trust that a ‘good’ person will behave in certain ways for the greater benefit. We help others with our time or money, because everyone wants to live in a society with the norm of caring for the people around them. Think about the norms on the teams you lead.
Have you created trust among your team members so that they will act in the best interest of everyone, even in competitive situations? Have you made kindness a norm, allowing people to expect support rather than individualistic decisions? Hire, mentor, and promote the people who embody the culture you want, and eventually, norms will emerge that prioritize the good of your team rather than the individual. If you create a core value of self care, people who want to work in a place that prioritizes work-life balance will end up gravitating to you. Then people will take their PTO because it’s the right thing to do in your culture. People who “undercut” the PTO policy will look like they are not team players instead of looking like hard workers.
Watch out for limited resources - You'll find counterproductive games
Leaders should be constantly aware of game theory. Accept that the most rational decisions people might make tend to be selfish and detrimental to the team without intervention. We tend to avoid acknowledging our selfish side, but leaders have to address game theory to create great organizations. Prime your awareness for situations with limited resources. When you see situations emerge with a less than optimal outcome if everyone makes selfish decisions, change the game. Make the selfish decision less appealing, or start reshaping your culture.
Want to pressure test your leadership? Ask about options to take your team out on a range of experiences tailored for the team capabilities you seek.
