The Strategic Leader’s Playbook: Insights from Game Theory

You have often been told that playing games is for kids, but Game Theory can help you be a better leader.

In 1950, the Cold War was heating up. The fear of nuclear annihilation was growing.

A US-based think-tank, The Rand Corporation, was thinking of how to deal with this issue. They turned to Game Theory which uses mathematical models to figure out what a rational actor would do during certain interactions.

At Rand, two mathematicians, Merrill Flood and Melvin Dresher, created a game that looked similar to the interactions that Russia and The US were having.

It would be known as the prisoner’s dilemma

You and another player are given two choices, to stay silent or to tell on the other player. You both make the decision without the knowledge of what the other decided. The outcome depends on both of your decisions.

• If you both stay silent you both get 1 year in prison
• If you tell on the other person and the other person stays silent you get 0 years and they get 3 years
• If they tell on you and you stay silent, you get 3 years and they get 0
• If you both tell, then you both get 2 years.

The problem in the real world is that we don’t just play the Prisoners Dilemma once. So what happens when you play the game over and over again?

Play Some Games

In 1980, Professor Robert Axelrod wanted to find this out. He created a computer tournament where he invited world-leading game theorists from many different subjects to submit computer programs to play each other.

He called these programs Strategies. Every Strategy would play off against every other strategy and a copy of itself. Each match-up would go for 200 rounds.

Instead of getting the least amount of years like the prisoners, this game was about earning the most coins. The goal of the tournament was to earn the most coins over all of the matches.

In the first tournament, there were 14 strategies and a random strategy. The strategies could either cooperate or defect. There were many different strategies.

Certain strategies would always cooperate unless the other strategy defected and then they would defect the rest of the time. Some would defect randomly. Some would make defections at certain points.

After all the games were played, the simplest program ended up winning. It was called Tit For Tat. It would copy what the other strategy did in the previous round.

If the other person cooperated, it would copy that. If the other person defected in the previous round it would do that.

The Nice Guy Wins

Professor Axelrod thought that the most complicated and what would be thought of as sophisticated strategies would do the best. But he found the opposite.

He analysed how those strategies ended up winning more. He found common themes in all of the high-performing strategies.

1 – Nice – which meant they were not the first to defect.

The opposite of nice is Nasty, which means they defect first. Of the 15 strategies in the tournament, the top 8 were nice and the bottom 7 were nasty.

2 – Forgiving – It can retaliate but it doesn’t hold a grudge. Or Unforgiving, in that if the other person defected it would never co-operate after that.

The result of being nice and forgiving was a much better performer than any of the experts thought.

Round Two

After sharing all of this information he decided to run the tournament again so people could submit updated strategies. The only difference is that the number of rounds would be random. It would all be at least 200 but you never knew when the last round would be.

This creates uncertainty on when it would end and so you can’t defect because you know it is the last round.

This tournament received 62 entries and again added random.

Certain groups made nice strategies seeing that they did well and assuming that it was the better way to go. The other side made nasty strategies, trying to take advantage of the nice strategies.

The results again, tit for tat was the most effective. Only 1 in the top 15 was nasty, and only 1 in the bottom 15 was nasty.

After more analysis, Professor Axelrod found two more qualities of successful strategies.

3 – Retaliatory – if your opponent defects, you strike back straight away. Don’t be taken advantage of.

4 – Being Clear – You didn’t want your program to be confusing and feel as if it was random. You couldn’t build any trust in how you would act.

Games for your Team

The interesting thing about the performance of the strategies is that it always depends on the strategies of the competition. You are in an ever-changing world.

What appears is that cooperation is a superpower and a reason why humans have taken over the planet. It is not people only doing something for themselves, but working together that has helped us achieve.

This same principle can be taken into leading your team or working with others.

The takeaway for you as a leader is that it creates four principles for how to operate with other people.

Be nice, be forgiving, be provokable, and be clear.

Professor of Applied Mathematics from Cornell, Steven Strogatz calls this an Eye for an Eye.

Leading with kindness, give them the benefit of the doubt. Assume they are doing things with positive intent.

When they make a mistake, forgive them. No one is perfect.

If they do something to harm the team, hold them accountable.

Be consistent with your actions and words. Have them know the rules by which you operate.

And remember the environment is always changing so you have to keep updating your approach.

This post was inspired by sections of https://www.youtube.com/watch?v=mScpHTIi-kM