what is game theory? | griffith connects

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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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