Game theory is in the news lately. For some, this may be the first they’ve ever heard of the field. For others, game theory might be part of an economics class they took back in college that they can barely remember. Luckily, I have unprecedented access to an economics professor who teaches game theory and who agreed to sit with me and answer some questions about using it to get a raise, get out of doing the dishes, and to (maybe) get laid.
I recently sat down with the Accessible Economist to ask the burning question of February 2014:
BLP: Why is Arthur Chu suddenly so smart? Shouldn’t someone have been doing this all along?
AE: Many game theorists have been talking about this way of playing in our classes for years. I don’t know why no one’s been doing this before now. Most people who understand game theory probably lack the charisma to audition for Jeopardy!
BLP: What exactly is game theory anyway?
AE: Game theory is a formal way of analyzing decisions when more than one person is involved. Most people make decisions as if they are the only person involved in the decision-making process and that other people are simply automatons whose preferences and strategies can be safely ignored.
Everyone is surprised when someone bids $1 on The Price is Right but they shouldn’t be. Most people try to bid the correct price, rather than the lowest, from a strategic viewpoint. It isn’t about knowing the price of the refrigerator. It IS about picking the price that’s most likely to win.
BLP: So how do you study it?
AE: When most people talk about game theory, they’re talking about a number of related fields. So there’s math modeling, psychology of decision-making, economic reasoning, negotiations, and so on. Most people think game theory is the best way to win at chess but what we really do is study the building blocks of relationships.
Most people have heard of The Prisoner’s Dilemma and some people have heard of The Meeting in New York game. These are very simple representations of the essence of relationships. Because whether you’re talking about business or romance or whatever, you’re still looking at the same incentives and motivations over and over.
BLP: We don’t all get on Jeopardy, unfortunately. How can a regular person incorporate game theory into their everyday life?
AE: One of the main inputs to a game theory analysis is thinking about the goals and motivations of someone else. Once you understand what drives someone, you can anticipate and create environments where you can take advantage of their preferences.
A good example is my friend from college. He hated his mother, yet repeatedly dated women just like her. Inevitably, after about a month, the relationship would end…badly. We would react by taking him out for beers and tell him what a great guy he was. We thought he was nuts but we cared about him and wanted him to be happy. We didn’t understand, at the time, what he really wanted, which was for us to take him out, buy him beer, and tell him what a great guy he was. It is likely he didn’t even fully understand what he really wanted, either. Once we realized his real goal, we stopped rewarding him for his bad behavior. We also saved beer money.
BLP: Can you use game theory to get a raise? How?
AE: If you take a class in negotiations, you’re really studying a narrow aspect of game theory. But, to get the raise, you have to anticipate and appreciate the motivations of your individual boss.
There are plenty of tips out there for you to review but you have to remember one of the most important players is YOU. Everyone’s preference is to avoid confrontation but, if you go into a meeting with your boss to request more money, you have to be prepared to act in ways you may normally avoid.
BLP: What about in your day-to-day relationships?
AE: One of building blocks of game analysis is The Battle of the Sexes. One person wants to go to the ballet, while the other wants to go to the basketball game. However, they’d rather be together than apart. How your relationship solves that game determines how happy each of you are in the relationship. There are multiple ways to solve the problem. In the end, a functional partner doesn’t make the other miserable simply because their option wasn’t chosen. So you can use this tool to evaluate your own relationship or to judge the relationships of others!
BLP: What about using game theory models with kids? Are there ways to incorporate it into child rearing?
AE: The key lesson of game theory for child rearing is that you should only make threats you’re willing to keep. Your kid knows you aren’t going to leave Disneyland just because they’re whining for a $14 hot dog. So when you threaten to do so and they know you really won’t, you’re losing credibility. Kids can smell a sucker and they know when you’re weak so don’t let them get the upper hand.
BLP: Have you ever used game theory to get a date?
AE: I haven’t. There are strategies and people talk about “negging” but just because you know psychological tricks doesn’t mean you should abandon personal ethics.
BLP: Will knowing more about game theory make me better, faster, stronger?
AE: Anticipating how others will behave and being thoughtful about their preferences will always put you in a position to make your relationship with them more rewarding and productive. So, yes.
BLP: And can it make me rich? Other than getting on Jeopardy?
AE: Most self-help programs rely on helping you see your “present self” and your “future self” as different entities. They help you structure your life according to what your future self wants your present self to do. Your future self wants you to save more for retirement, go to the gym, and not have Fritos hidden in the cupboard. Your current self wants to call in sick to work and eat those Fritos while watching the Hoarders marathon.
More and more, companies are making employees opt out of retirement plans, rather than opt in. This is because our present selves are so lazy that they will go with the default, even when the difference is hundreds of dollars a month.
Letting your future self call the shots probably will make your retirement more comfortable, if less filled with Fritos.
