God and Game Theory (Part II)

The Stanford Encyclopedia of Philosophy states, “Game theory is the study of the ways in which strategic interactions among rational players produce outcomes with respect to the preferences (or utilities) of those players, none of which might have been intended by any of them.” This branch of applied mathematics has been around for about 60 years. It has only recently been utilized in actual business problems. From what I have read, several organizations competing to gain control of cell phone band width in certain key locations developed and agreed to a mathematical solution that maximized the benefit of all at a minimum expenditure of their resources. Although the study of game theory is a relatively new and arcane academic discipline that is only finding its first applications in the real word, the language of game theory is showing up in financial websites, business publications, and even in the mainstream press.

Tic tac toe is not a very interesting game. Players take turns placing an X or an O in a matrix in an attempt to locate three of their symbols in a single line. There are not many ways to cheat at tic tac toe. Football is a little more interesting. The players do not take turns. When the ball is snapped 22 men and one ball start flying around in three space. Some of the players are doing what they have been told to do by their coaches. Some of the players are free lancing. At least some of the time the play ends when the referee blows his whistle. There are rules but players are taught how to cheat and escape detection. On almost any given play, particularly among offensive linemen and defensive backs, someone is cheating. Cheating is part of the game. Of course, if detected, the foul will draw a penalty. The coaches and the players need to make a rational decision on how and when to cheat in order to maximize the possibility of winning the game.

Economic behavior is even more complex. There are almost 6,000,000,000 players and no time clock. However there are similarities. Many companies routinely steal patented technology. They make a rational decision. The probability of a law suit and the expected penalty is weighed against the cost of obtaining a legal license. If the cost of cheating is deemed to be smaller than following the legal course of action, the company will cheat. Sometimes these calculations don’t work out as expected. Back in the late 1980s Kodak lost $494 million in an attempt to steal Polaroid’s instant camera technology.

Human behavior is not always rational. In the aforementioned article “The End of Rational Economics,” an interesting experiment is described. Two players sit at a table. The researcher offers one of the players a ten dollar bill. The player is told he can keep the ten dollar bill end the game and walk out of the room or he can give the ten dollar bill to the second player. He is told if he gives the ten dollar bill to the second player, the researcher will give an additional forty dollars to the second player. If the game progresses and the second player gains fifty dollars, he can choose to share it with his partner and end the game or he can choose to keep the entire amount. If the second player chooses to keep the entire amount, he must agree to one more move. If the second player chooses to keep the fifty, then the first player is given twenty five dollars. The first player can choose to keep the twenty five dollars, leaving the second player with fifty dollars or he can choose to give any amount of money back to the researcher. For each dollar given to the researcher the second player looses two dollars. If the first player spends the entire twenty five dollars he can take all the money away from the second player, leaving both of them with nothing. Strictly rational behavior would leave the players with seventy five dollars. In this case one of the players would feel cheated. The Golden Rule would leave the players with fifty dollars. In this case both players would be happy and the basis for a future business relationship would have been established. However, all too often, researchers have discovered the players leave the game with nothing. Further research based on brain scans of players taken during these games indicate that taking personal vengeance against a perceived enemy lights up the pleasure centers of the brain, our fallen nature at work.

I would contend that the unwritten rules are even more important than the written rules. People are very sensitive to what is expected in a culture. If they are attracted to the culture, they join. If they turn out to be a bad fit, they leave. A famous story is told about General Robert E. Lee. After the war, he became the president of Washington University. Once a freshman approached the great man and asked where he could obtain a copy of the college rule book. General Lee looked shocked and replied, “Why we have no rule book. We are all gentlemen here.”

Engineers and other rational beings tend to believe that corporate culture is squishy talk from liberal arts majors. I tell them, no, corporate culture is not soft. It is hard. During a project, I once had occasion to visit a pump factory in Pennsylvania. The lobby was a two story glass atrium. The back wall of the atrium was completely covered with hundreds of professional engineering licenses from every state in the union. It is completely overwhelming. New hires will never need to hear a single word about the importance of obtaining a P.E. license. Corporate culture is hard.

Our culture is breaking loose from its Juedo-Christian roots. It seems to be bypassing behavior that can best be described as strategic interactions among rational players and moving towards a world similar to the one created by Mario Puzo in the Godfather. A world where the players need not give one another assurances as though they were lawyers because a move that is not perceived as the act of a friend will demand certain and bloody retribution and blood, it has been observed, is a big expense.

Matthew 5:

[1] And seeing the multitudes, he went up into a mountain: and when he was set, his disciples came unto him:
[2] And he opened his mouth, and taught them, saying,
[3] Blessed are the poor in spirit: for theirs is the kingdom of heaven.
[4] Blessed are they that mourn: for they shall be comforted.
[5] Blessed are the meek: for they shall inherit the earth.
[6] Blessed are they which do hunger and thirst after righteousness: for they shall be filled.
[7] Blessed are the merciful: for they shall obtain mercy.
[8] Blessed are the pure in heart: for they shall see God.
[9] Blessed are the peacemakers: for they shall be called the children of God.
[10] Blessed are they which are persecuted for righteousness' sake: for theirs is the kingdom of heaven.
[11] Blessed are ye, when men shall revile you, and persecute you, and shall say all manner of evil against you falsely, for my sake.