what is game theory? | griffith connects
TRANSCRIPT
THANK YOU
What is Game Theory?Relevance for Business
Presentation at Griffith College, Dublin
August 25 2016
Patrick A. McNutt
Visiting Fellow, Manchester Business School, UK& Smurfit Business School, Dublin, Ireland.
www.patrickmcnutt.comFollow @tuncnunc
Game theory focuses on individual behaviourA game unfolds when there is both mutual interdependence and
action-reaction chain of events
When you modify your behaviour you are enveloped by a game
You either play to win (historically, a winning strategy ) or play not to lose (maximin strategy)
Ultimately, you abandon unilateral decision making & embed an inherited or acquired game DNA
SPECIFIC RELEVANCE FOR BUSINESS?
1. Trade-offs….between variables X and Y2. Observed Behaviour….known as ‘Nudge’
3. Primary focus on Patterns…..data analytics & prediction
_______________________________________________
So game theory could transform your view of a competitorAllows you to shape strategy (smart strategy)
Premise: Prediction depends on finding a patternStep 1. find a sequence
2,3,5,8,13,21,34…
Step 2. individual as digital self
repeat behaviouroutsource memory
Step 3 coding the pattern
alpha-numeric: word = 9673binary 7 = 111
finite order [string]
Behaviour at the level of individualTheory: We check: Inertia or Habit?
Practice: Can we code the behaviour? ID the rule (or rules of the game)+
Influence the players’ belief=
decoding the pattern
A game is like ‘a behavioural process, a sequence of actions and reactions at time period t with consequences at time period t+1’
Lets take an example: The Daily Routine
The Daily RoutineSm
artp
hone
Wak
e U
p 7a
mLeave the house 725amTransit Smartcard at 745amCheck text messagesSocial media
NFC
at c
offee
shop
825
Coffee stop 820amTexting, FB and ‘Googling’ the weekend plans.‘Latte to go’ NFC payment at 825am walk to office
At o
ffice
Log
in P
C 84
5
At desk: 845am Log On PC, search web. & texting925 Receive text message confirm lunch1230 for lunch, CC payment 13.451730 Log off PC; Returning home, smart card 1814; send text; at home by 1855 surf the net, final texts, web browsing.Texting, surfing ‘lights out’ by 23.55
The Daily Routine
745
825
845
925
1345
1730
The Daily Routine
A Pattern evolves from
MONDAY,TUESDAY, WEDNESDAY, THURSDAY… CAN WE PREDICT FRIDAY?
Pattern evolves
WEEK 1, WEEK 2, WEEK 3……
CAN WE PREDICT WEEK 4?
Daily Routine Algorithm: Decision Tree
Daily Routine Algorithm: Decision Tree
7am
725
745
NUDG
E
820
825
845
NUDG
E
925
123
013
45
FIND THE PATTERN (the roots of the tree): WHY?
IT IS THE COGNITIVE KEY THAT DECODES BEHAVIOURBT+1 = BT + Δ
IN THE DAILY ROUTINE WE HAVE Nudge zone: 8.20 - 8.25a.m
IN BUSINESS ALSO FIND THE PATTERN
Example: SONY v MICROSOFT pattern of prices Nudge zone: pre-2004
Information is embedded in observed behaviour Bt during the time continuum
from t to t+1.
Bt+1 = Bt + Δ
Δ is the nudge parameter thatpolicy makers, management, data
pharoahs and strategists can influence.
RANDOMNESS->NUDGE-PATTERN
SEQUENCE-CODE->PREDICTION
PATTERN – 2000-2006
26 Oct 00 15 Nov 01
14 May 02
15 May 02
13 May 03
14 May 03
29 Mar 04
1 Nov 05
30 Oct 05
PS2 launched at $299
Microsoft Xbox launched at $299
PS2 at $199.99
Xbox at $149
22 million Xbox shipped
Xbox at $199
PS2 at $179.99
Xbox at $179
PS2 at $149.99
11 May 04
100 million PS2 shipped
Xbox 360 launched at $399
22 Nov 05
Xbox at $179
6 Feb 06
20 April 06
PS2 at $129.99
27 April 06
Revised production schedule for Xbox 360 to 5- 5.5 million units by 30th June 2006
8 May 06
Announcement PS3 production schedule to ship 6 million units by 31 Mar 07 at $499
October 2000 – May 2004observable pattern ex-post
299..299..199.99..199..179.99..179..149.99..149
opening symmetric move…….…………..
50% price decrease
repeated in 2010 and 2015
Cognitive Business Strategy
1. Thinking about moves or strategy‘I think-you think-I think’
2. Signaling occurs in a gameObserve the playbook as patterns
Influence the patternsCode the patterns
With signaling everything is changing
What should I do?
With all the chaotic information available ‘what you are’ and ‘who you are’ defines your Daily Routine and algorithms
convert it into information = a valuable tradable asset, so
Stop and Think.Know Your Pattern
Observe but do not judge
‘Habit is a great deadner’Samuel Beckett
Waiting for Godot Act II
Thank you for listening………
THANK YOUCarry on the conversation
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