Cairn Leadership logo of a rock cairn stacked next to the name of the company.
Edit Content
Contact Us

Game Theory and Leadership

Knight Campbell
January 17, 2024
Game theory helps leadership grapple with limited resources.
When we are all tied together, it hurts the team to be selfish. Leaders can use game theory to craft a team focused culture.

Good leaders use game theory to shape culture

First, we must recognize that solving problems with game theory and leadership falls on the leader. If we expect that people are rational, we expect that they will choose the most rational decision for themselves unless we change the game or change the culture.

Imagine for a minute that you and your accomplice stole a beautiful painting worth one million dollars. You hid the painting, but then shortly afterward the police took you in for questioning. You are in separate rooms and unable to talk to each other. The authorities are confident of your guilt, so they offer each of you a deal. They tell you that if you turn your accomplice in, you can go free. You could then go retrieve the million dollars (instead of splitting it). Your accomplice would then spend 10 years in jail unless he or she turns you in as well. Then you would both spend five years in jail instead of 10 for your cooperation with the police. If on the other hand, neither of you turns in the other, you both go free, sell the painting, and split the million dollars!

You might recognize this as the prisoner’s dilemma, a staple of game theory. If you consider yourself a good person, art theft aside, you may be surprised that the most rational individual choice for both of you is to turn the other person in! The implications seem dark indeed. How could that be, considering that if you both turn the other in you spend five years together in jail? Here’s how turning your accomplice in nets you the best result, no matter what the other person chooses to do. If your conspirator doesn’t turn you in, you go free and gain a million dollars. If he or she does turn you in, you have saved yourself from half of the impending jail time (five years in prison)

Game theory and leadership graphic

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- planning your actions based on what you anticipate other rational players will decide to do. The above example describes two corporations trying to decide whether to work together or undercut each other’s pricing. It portrays coworkers deciding whether to cooperate as a team or compete for personal recognition. 

The important theme here is that when people make rational individualistic decisions, it usually results in losing the best option for the group. 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 would own up to their mistakes. Hopefully, you are beginning to see how this is a leadership problem.

What leadership can do to overcome game theory

So what can we do as leaders? First, we must recognize that solving problems caused by game theory falls on the leader. If we expect that people are rational, we expect that they will choose the most rational decision for themselves unless we change the game or change the culture. 

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. 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 the conspirators above answered to a boss who had a clear policy of severely punishing people who ratted out fellow criminals, they could reliably make the best choice for the group. They could trust each other to stay silent and eventually split the million dollars. Often leaders want to sweeten the pot, but making the stolen painting worth more money would not change the rational best decision. Offering extra money for people to take vacations would not allay the fear of looking like a slacker. Instead, leaders sometimes need to change the game to make the original rational decision look worse like the crime boss did. 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 would be 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 or 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 in the teams or organizations 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.

Watch for limited resources

Leaders should be aware of game theory and the most rational individual decisions their people might make. We avoid scrutinizing the selfish side of ourselves and our people in the name of fostering competition or avoiding discomfort, 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 individualistic decisions, change the game, i.e. make the selfish decision less appealing, or start reshaping your culture!

Want to test your leadership under pressure? Ask about options to take your team out on a range of experiences tailored for the growth you need.

Questions? We'd love to hear from you! 

Additional Articles

Peering out from under the hood of my rain jacket as water pooled into my boots, I had a peculiar thought: I hope everyone gets the opportunity to get rained on while playing outside.
99% of college professors say that critical thinking is the single most important concept students need to learn, but most studies show that students leave school unequipped to think critically.
Leaders need adventure to thrive, grow, learn, and simply live fulfilling lives. Do you have enough adventure in your work life? Does leadership sometimes feel like a burden rather than a joy?

Let's Stay in touch