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.com
Follow @tuncnunc
Game theory focuses on
individual behaviour
A 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 Y
2. Observed Behaviour….known as ‘Nudge’
3. Primary focus on Patterns…..data analytics & prediction
_______________________________________________
So game theory could transform your view of a
competitor
Allows you to shape strategy (smart strategy)
Premise: Prediction depends
on finding a pattern
Step 1. find a sequence
2,3,5,8,13,21,34…
Step 2. individual as digital self
repeat behaviour
outsource memory
Step 3 coding the pattern
alpha-numeric: word = 9673
binary 7 = 111
finite order [string]
Behaviour at the level of
individual
Theory: 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 Routine
Coffee stop 820am
Transit Smartcard at
745am
Texting, FB and
‘Googling’ the weekend
plans.
Social media
NFC at coffee shop 825
Smartphone Wake Up
7am
Check text messages
‘Latte to go’ NFC
payment at 825am
walk to office
At desk: 845am Log On
PC, search web. &
texting
At office Log in PC 845
Leave the house 725am
925 Receive text
message confirm lunch
1230 for lunch, CC
payment 13.45
1730 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
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
FIND THE PATTERN (the roots
of the tree):
WHY?
IT IS THE COGNITIVE KEY THAT DECODES
BEHAVIOUR
BT+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 that
policy makers, management, data
pharoahs and strategists can influence.
RANDOMNESS->
NUDGE-PATTERN
SEQUENCE-CODE->PREDICTION
PATTERN – 2000-2006
PS2
launched
at $299
PS2 at
$199.99
PS2 at
$179.99
14 May 02 13 May 03
26 Oct 00
PS2 at
$149.99
100 million
PS2
shipped
Announcement PS3
production schedule to
ship 6 million units by
31 Mar 07 at $499
PS2 at
$129.99
20 April 06
1 Nov 05
8 May 06
11 May 04
15 Nov 01
15 May 02 14 May 03
29 Mar 04
22 Nov 05
22 million
Xbox
shipped
Microsoft Xbox
launched at $299
Xbox at
$199
30 Oct 05
Xbox at
$179
Xbox at
$149
Xbox 360
launched
at $399
6 Feb 06 27 April 06
Xbox at
$179
Revised production
schedule for Xbox
360 to 5- 5.5 million
units by 30th June
2006
October 2000 – May 2004
observable 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 game
Observe the playbook as patterns
Influence the patterns
Code 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
Thank you for
listening………
‘Habit is a great deadner’
Samuel Beckett
Waiting for Godot Act II
YOU
Carry onTHANK
the conversation
#GriffithConnects