Game Theory in Management

From the time John Von Nuemann and Oskar Morgenstern wrote Theory of Games and Economics (Princeton University Press, 1944 – a date, incidentally, that indicates that Von Nuemann was working on this book while he was also working on the Manhattan Project), there has been this notion in the management science world that Game Theory, either on its own or in combination with statistics (or some other, complimentary area of scholarship), could help generate some sort of grand unifying theory that would enable those who developed such a theory to precisely calculate economic behavior. Put another way, there’s been this hope that some super-sophisticated formula, that took into account a sufficient number of parameters (by necessity, would have to be myriad), might lead to an ability to predict a macro-economic future with a usable degree of accuracy. As I’ve mentioned often time before, any reasonably competent stock broker or commodities trader, if handed a copy of next week’s Wall Street Journal, could begin picking out the color of his new Jaguar right away, so it’s easy to see why such a formula could be hoped for. It’s the management science equivalent of knowing the upcoming PowerBall numbers – placing Game Theory squarely at the very tip of management’s cutting edge.

As I discuss (at length) in my recently-released, must-have book, Game Theory in Management (https://www.ashgate.com/default.aspx?page=641&calctitle=1&pageSubject=1966&title_id=11616&edition_id=11979) , this quest to be able to calculate the future was even at the heart of Isaac Asimov’s famous Foundation trilogy. In Foundation, we are introduced to one Harry Seldon, who has actually developed a Code of Nature, which can calculate the future with a reasonable degree of accuracy. The most common analogy employed is that of gas (I swear I am not making this up): it would be admittedly impossible to predict the behavior of one molecule of a gas. But, given billions and billions of such molecules, their macro-behavior becomes predictable through scientific calculations and observations. Similarly, the Foundation trilogy occurs far into the future, when humans have populated much of the Milky Way and their population numbers in multiple billions. What’s notable about the fictional Seldon Plan is that it is nearly undone by the uncalculated appearance of a character known as The Mule, who can telepathically change people’s minds. Since The Mule is a mutant, his appearance could not have been anticipated through the calculated structure of the Seldon Plan.

The problem with developing a business version of the Seldon Plan, of course, is that it’s wildly impossible. I mean, the notion makes for great science fiction, but the genre of science fiction is usually chosen because the author needs to present a version of reality that’s completely impossible in the present, or even in the past. And that’s certainly the case here.

Consider that extremely simple game, the Ultimatum Game. In it, two participants – Player A and Player B – are offered $100 (USD), and they only need to do one thing to get it: Player B must agree to Player A’s initial plan for distributing the money between them. If Player B does not approve, neither player receives anything. Game Theory analysts calculated that Player A maximizes his payoff if he offers Player B just $1, and tries to arrange to keep $99 for himself, under the theory that, since Player B’s alternatives are to accept one unearned dollar, or nothing at all, they will always accept the former.

But a funny thing happened on Player A’s trip to deposit his $99. The scheme calculated to maximize Player A’s payoff was almost never accepted in actual experimental iterations of the Ultimatum Game. In fact, Player Bs didn’t come close to accepting the proffered split from Player A until the arrangement approached 60 – 40. Game Theory analysts offered explanations on why they were so dramatically wrong, often centered on unforeseen “cultural influences.” As far as I’m concerned, invoking “cultural influences” was a way of trying to get around the fact that, even when the parameters are as stark and hard as those in the Ultimatum Game, it’s simply impossible to exclude factors outside of those anticipated from having a profound influence on the selected strategies of the game’s participants.

Ultimately, (pun intended) Game Theory is next to useless when invoked to help predict the future strategies most likely to be invoked by participants in either artificially constructed zero-sum games, or in the behaviors of players in the macro-economic “game.” However, Game Theory is extremely valuable in the furthering of management science, since it plays the central role in…

Oops! I’m butting up against my word limit. To find out how Game Theory is of extremely valuable use in evaluating management strategems and tactics you will either have to purchase my previously-referenced book (I told you it’s must-have!), or else wait for me to disclose more in this blog in future postings. What do you suppose are the odds that I will select a strategy to tell you what you crave to know in the next couple of weeks?

Any discussion of the cutting edge of management science must, by definition, turn on its modernity. The threat here, though, is that novelty will be perceived as an appropriate stand-in for validity. Much of the management-themed content I peruse takes the opposite approach, that of attempting to portray as new or fresh ideas that are anything but. No matter how brain-gellingly dull these management trade magazines are, they seem to never tire of printing as astonishing or useful insight ideas that have been around for some time. One particularly insipid device used is the tack of re-introducing old techniques under new phraseology, much as “Life Cycle Estimating” was trotted back onto the business discussion pages in the 1990’s. How many articles have we been subjected to that had, at their core, some blindingly obvious re-hash of an idea that hasn’t been considered “cutting edge” since In Search of Excellence was big?

With the possible exception of Agile/Scrum, there has been a dearth of new ideas in project management. I even came across a book review of a tome that had in its title a reference to new ideas in project management. The review complained of the lack of new ideas! Harkening back to Gantthead’s August theme, Harvard Business Review actually ran a piece recently on how “green” procurement is highly virtuous. The author didn’t even bother to fake a claim of cutting-edge insight – he was happy tapping into a trendy subject, and tenuously cross-connecting a management science angle.

As long as I’m complaining about the venues that are nominally responsible for introducing cutting-edge managerial ideas into the marketplace, I may as well continue picking on Harvard Business Review. If you go to their website (although, as Gantthead readers, I can’t imagine why you would want to), they refer to themselves as publishing “(b)reakthrough ideas for business leaders and professionals….” From their guidance for article submissions, we see

Proposals for articles demonstrating fresh thinking that advances previous knowledgewhose (sic) practical application has been thought through in clear, jargon-free languageare (sic) those most likely to meet our readers' needs. When evaluating an idea, our editors often look for two things (sic) firstwhat (sic) they call the aha!How (sic) compelling is the insight?and (sic) the so what?How (sic) much does this idea benefit managers in practice?

Sorry about all the sics, but I didn’t want my editors thinking that I would publish something so obviously un-reviewed by proofreaders. Perhaps it was a “breakthrough” idea to forgo merit as a basis for hiring and retaining the website’s editorial staff, and focus instead on being “green,” or “diverse.”

So, they want “fresh thinking,” do they? Then how to explain this gem, just a few sentences later?

5. On what previous work (either of your own or of others) does this idea build?

6. What is the source of your authority? What academic, professional, or personal experience will you draw on?

In other words, they can either reject your article proposal either because it’s innovative, or because it’s not.

At another location of HBR’s website, they have at the top of their “recommended” article list – I swear I am not making this up – the title “Sex and the Working Mom.” The gist of this piece appears to be that managers must be aware of and make accommodations for the demands of their female employees’ libido, a concept I thought had lost favor immediately after the Clinton administration. Another recommended title: “Politicians Who Deny Climate Change Cannot Be Pro-Business.” In it, one Andrew Winston supports his “argument” exclusively through the syllogism of Begging the Question, where one asserts as truth evidence that has not been verified as fact, nor agreed to by the participants. (As an aside to any of my readers who may have skipped Classical Logic at the university level – any conclusion reached via a syllogism is automatically considered invalid.) Mr. Winston’s ultimate point appears to be that, if the bureaucratic goons who are shutting down little Suzie’s lemonade stand show up in a Nissan Leaf, it’s somehow good for “business.”

Which returns me to last week’s blog, and Thomas Kuhn. In The Structure of Scientific Revolutions, Kuhn points out that, when a true advance in science occurs, it is virtually never quickly adapted by the majority of the practitioners in whatever field is being advanced. In short, any genuinely “cutting edge” idea in management science is almost guaranteed to never make it past HBR’s staff. It’s far more likely to show up in, oh, I don’t know, my recently-released must-have book, Game Theory in Management (http://www.ashgate.com/default.aspx?page=641&calctitle=1&pageSubject=1966&pagecount=0&title_id=11616&edition_id=11979), or on Gantthead’s blog pages.

In 1962, Thomas Kuhn wrote The Structure of Scientific Revolutions. In it, he posited that advances in science tend to assume an observable pattern, that of leaping ahead, interspersed with periods of stagnation and conflict. One of the examples he uses is cosmology.

When Copernicus first asserted that the Earth was not the center of the Universe, his ideas were widely scorned and disputed. The Ptomely model of the cosmos, of course, had Earth as its center, with the Sun and the planets orbiting its fixed position. This model assumed a series of set cycles: when observations were made that seemed to contradict the Ptomely theory, the model was modified through the additions of epicycles to explain the new data. However, Copernicus observed data that did not appear to fit the Ptomely model, which led him to develop another model, one with the Sun in the center of the Universe. He published his new model, but its acceptance was not immediately forthcoming. It was not until the invention of the telescope, in 1608, that the amount of additional data being collected that disputed Ptomely, while supporting Copernicus, became so overwhelming that the scientific community adopted Copernicus’ version of the cosmos. As the technology that allowed us to collect even more observational data advanced – no doubt, experiencing its own Kuhnsian cycles – we came to understand that the Solar System is actually part of a vast, swirling arm of the Milky Way, far, far from its center. And – wouldn’t you just know it? – the adaptation of that theory was not immediate. It took time for the majority of the scientific community to accept the next leap forward. Similar patterns have manifested in the other sciences, from biology to chemistry to physics to medicine. While it is somewhat natural for people to look back at history and come to the conclusion that advances in the sciences were made at a relatively steady pace, Kuhn’s work overturns this notion.

As I discuss in my recently-released, must-have book, Game Theory in Management (http://www.gowerpublishing.com/isbn/9781409442417),we start to have difficulties when we talk about management “science.” In order for a theory to be considered scientific, it must have two characteristics:

·         It must be observable, and

·         It must be repeatable in an experimental setting, inside or outside of a laboratory.

Otherwise, it’s rank speculation. There may or may not be a Loch Ness Monster, a plesiosaur left over from ages ago that somehow frequents a particular Scottish lake. Nessie has met the first condition of being “scientific,” with intermittent and spotty observations throughout the modern era. However, without a specimen available for repeated observations, she cannot be considered real, at least not in purely scientific terms. Bill Nye, the “Science Guy,” has recently come out with strong criticism against any who would doubt that the theory of evolution should be considered valid. However, seeing as how the theory of evolution is neither observable (there is no single instance of an observed new species coming from a mutation of an existing, yet identifiably different, one), nor repeatable in an experimental setting, it could actually be argued that, strictly and scientifically speaking, the theory that Nessie exists is more “scientific” than Darwinism. Don’t get me wrong – the macro evolutionists may very well have the inside track on how specific species were introduced into – wait for it! – creation. But when they assume the high ground of “scientific” backing, they presume much.

And now, back to management science. Can we expect management science to advance in ways similar to the other, harder sciences? The macro economical environment – or, even, the micro economical one, really – is so vast, with so many actors and parameters, that it is, essentially, rank speculation for anyone to connect causal factors into a universal hypothesis on exactly how organizations succeed in the marketplace, and precisely why failures fail. Far away from experimental settings, we connect those dots based on our experience and observations, and the more studious amongst us will attempt to verify our particular narratives with analogous situations or stories. Sometimes we managers will swerve into an analysis that is particularly prescient, and can leverage that insight into success, only to find that that narrative is no longer effective in new environs – the parameters of the experiment have changed. The unfortunate among us will have to work for an executive who has realized success in the past, but has inappropriately transferred the structure of the reasons for that success into an organization or project situation where it doesn’t belong, but cannot be persuaded to perform the kind of humble introspection that would allow a mid-course correction. Arrogance in selecting a particular technical approach can produce terrible masters.

As we explore, together, throughout the remainder of September, the makings of early identification of the leading edge of project management theory, I want to remind my readers that much rank speculation will present itself as “scientific,” and, after further review, it very well may be. I just want to be able to reproduce it in an experimental setting prior to complete, blind acceptance. That’s all.

As I wrap up my month-long eye-roll on the subject of “green” project management, I must admit that the people at Gantthead have been very good sports about my playing the role of curmudgeon. But, since they have given me this amount of latitude, I’ll go ahead and test their patience just a bit further:  virtually all projects that result in an advance in technology or improvement in people’s lives are automatically green.

Of course, that assertion flies in the face of the enviro-wacko crowd, who insist that anytime “nature” is encountered by man, “nature” comes out on the losing end.  Incidents such as my previously-blogged-about saving of the whales by Rockefeller and Standard Oil, or even little things like spotted owls building nests in K-Mart signs, somehow escape them.  Early in my career I worked at the Trestle EMP Test Site at Kirtland Air Force Base in New Mexico. The Trestle was (and perhaps still is) the world’s largest all-wood structure. It was designed to provide a platform for testing the effects of Electro-Magnetic Pulse on aircraft while the planes were in-flight. Since a potential effect of an EMP on an aircraft was to render it un-flyable, the Trestle was constructed so that planes could taxi from a nearby runway and onto the “hot pad,” which was about five stories above the floor of Tijeras Canyon. There it could be bombarded by simulated EMPs without the ground interfering with the collected test data, and without any aircraft actually tumbling out of the sky.

Naturally (get it?), local environmentalists hated the whole project, dealing, as it did, with radiation research. Nevermind that the radiation involved was radio-frequency, and the site didn’t introduce any more radiation into the environment than a radio transmitting tower – this was radiation, and it therefore had to be detrimental to “the environment.”  Only problem was – “the environment” didn’t agree. A family of great horned owls set up a nest beneath the hot pad, and proceeded to raise a few generations of great horned owl chicks. Those had to be the most closely monitored non-endangered birds in history. Trestle project opponents just knew that the birds’ health was endangered. But the data never supported that supposition.

Consider the progression of the fuels mankind has used over the ages. Tribal through feudal civilizations burned wood for heat and cooking. Of course, wood comes from trees, so as the demand for energy increased, more and more trees had to be harvested. Also, wood produces far more smoke for far less realized energy than…

Coal came into widespread use at the advent of the Industrial Revolution. It was already supplanting wood as a heater of homes in London in the 1800s, but it was also preferred over wood for the running of steam locomotives.  A given quantity of coal has twice the BTUs of the same amount of wood, while emitting less ash into the atmosphere when it’s burned. Of course, coal is more difficult to extract than trees are to harvest, but the overall pattern was clearly pointed towards supplying greater energy demands with a smaller impact to “the environment,” which brings us to…

Fuel oil contains 115,000 BTUs per gallon. There are 365.5 gallons per ton of the stuff, meaning that fuel oil has almost twice the energy of coal by weight while, again, releasing fewer contaminants into the air when it’s burned. By now even the senior executives at Greenpeace should be able to pick up a pattern, a pattern which continues to manifest as we move from oil to natural gas to nuclear energy. The fuel becomes more difficult to extract, but it produces much, much more energy for fewer quantities of waste products. Note that none of these transitions happened because protecting “the environment” was a universal goal. They all came about as mankind advanced technology and searched for more efficient ways of meeting escalating energy demands – “the environment” benefitted every single time such a transition took place. In fact, the only way that the argument that mankind’s energy use is harmful to the environment can be supported is if we look to history, when energy technology wasn’t as advanced as it is now, and compare those circumstances to today’s. We may find the descriptions of a coal smog enfolding cold Londoners of the 1890s to be distasteful, but London of 1890 was a far better place to live than London of 1590, and for reasons that go far beyond preferred energy usage.

And what drives this search for advanced technology? What Edward Bulwer-Lytton, First Baron Lytton coined as “the almighty dollar.” History’s energy barons weren’t trying to improve the environment – they were trying to get rich supplying a population’s energy needs, and the natural world around them improved as a side benefit. It appears Adam Smith was more right than he realized: each person pursuing their unique economic interests not only benefits the macro economy – he also improves the environment. The (US) dollar is green, too.

The Luddites were a group of anti-industrialists, active mostly during the early 1800s. Alarmed by the way in which advances in technology allowed relatively unskilled workers using machines – primarily looms – to replace the work of skilled artisans, all with greater output and lower costs, they set about destroying the machines used in production.

The Industrial Revolution began around 1750. At that time, life was, as Thomas Hobbes put it, “nasty, brutish, and short.” Life expectancy for an English man was 31 years – and England was then, as now, one of the best places on Earth to live. Two-thirds of all babies born did not live to see their first birthday. Prior to 1750, virtually all members of the populace worked in agriculture, with next to none in what we would term “industry.” It was, I would imagine, very close to what many “green” protestors would project as an idyllic setting. Flash forward to 1900, the green’s nightmare. Smoke stacks dot the horizon, belching smoke into the air, making textiles, consumer goods, weapons. However, the life expectancy has jumped 14 years, and only 15% of babies die in infancy. Not only that, but England’s population swelled, from 7 million in 1750, to 37 million in 1900. The standard of living had a commensurate advance, too.  In 1750, travelling across the Atlantic was fraught with peril. By the beginning of the 20^th century, the only way such travel was even potentially fatal was if your ship happened to run into an ice burg, and even that was considered extraordinarily rare. Many other examples abound, but I’ll go ahead and state the obvious: if the anti-industrial, anti-technology efforts of the Greens were to reach their logical conclusion, life would return to being nasty, brutish, and short. But at least the snail darters would thrive!

How is it, then, that green protestors so quickly assume – and are so gratuitously granted – the intellectual and moral high ground when they seek to protest a given project? The highly irksome tendency of the greens to lay claim to the intellectual crown when they select a project to protest is particularly absurd, committing, as they do, the Luddite Fallacy, and in dramatic fashion. History shows, time and again, that advances in technology produce advances in life expectancy and quality of life, and those societies that, for whatever reason, eschew or cannot attain or integrate advances in technology, quickly become very unpleasant places to live. And yet, there go those green protestors, attracting media coverage and making your project look like you are harming someone, somewhere – exactly how is never clearly spelled out. It has something to do with greenhouse gasses, or animal experimentation, or deforestation, or something, right?

If you are the manager of a project that has drawn the attention and subsequent ire of green protestors, your life has just become much more difficult. Being gracious or reasonable with these people is a fool’s errand. They are famous for using unusual, confrontational tactics, and their goal is to force your project to fail. Not cost more, not be delayed – abject failure, even as they go about making your project more expensive and inflicting delays. It’s either your project team or the greenies, and part and parcel of the PM’s job is to make sure your project team comes out ahead if you find yourself in this situation.

Of course, I’m not advocating that anyone do anything illegal; but, if the other side can push the limits, why can’t your project team? Say your project is in the crosshairs of the animal rights crowd, or even PETA itself. What’s the harm in finding out if it’s illegal to round up a few dozen rats, and release them into the protestor crowd 15 minutes into their bullhorn-communicated rabble-rousing? These people love rats, right? You would be doing them a favor.

Naturally (get it?), that tactic requires your project’s opponents to come out into the open, and try and state their case. But what happens if, say, Harrison Ford has “one acre” of his chest hair removed, via waxing, no less, to “call attention” to deforestation, as Access Hollywood reporters look on? There’s really nothing you can do, other than revel in the irony of LucasFilms dropping its plans for a 269,000-square foot studio in Marin County, California, because of opposition from “green” leaders. George Lucas, as is widely known, is the main reason anyone knows Harrison Ford in the first place, having cast him early in his career in American Graffiti, and then his break-out role in Star Wars. Who is the Harrison Ford of this generation, whom LucasFilms was poised to make insanely successful, had they only been able to build their studio? Whoever he is, he may prove to be lucky, having been spared the fate of being rich and famous, but idiotically misguided in adopting extra-professional causes to promote.

In short, if your project has green protestors, don’t accommodate – overcome.