Episode 64: Game Theory Explained

This is a excerpt from a private training for a group of dental practice managers / leaders where I walked through game theory as a framework for understanding how people behave in conflict — explaining how every player's actions are shaped by what they stand to gain or lose. To maintain privacy, what's not captured here are the actions, takeaways and tools for them in their roles for conflict and friction reduction in their work environment. 

Transcript

0:01

Welcome to The Sovereign Guide. I'm your host, Alistair MacDonald. Let's get started.

Audio Only - All Participants 0:08

Does anybody know someone in their life, by a show of hands, that is pretty cruel? When they get into conflict, they can be really cruel. Okay. So all right. Only Looks like only five of us have hands because everybody does. We all, we all have someone in our life that can, can really in conflict, and maybe we all have it in us. I, I know it's in me. It's, I think, in all of us to be cruel in and, and turn, uh, misalignment into conflict. Uh, we all have that person who does this. I use that because it's an example of a principle that I wanna just share here for your consideration I'm not sure how many of us here are familiar with the concept of game theory. Game theory is essentially a mathematical premise where when we have multiple people participating in something, it could be a game, it could be a war, uh, it could be, uh, a working environment, the ecosystems that you manage and run. Game theory is a way for us to quantify the probabilities of how the various players are going to show up according to the incentives that they have to gain and the price that they stand to pay or the cost to them, the things they stand to lose. Uh, I am no mathematician by any stretch. My math skills pretty much end with dual entry accounting. That's kind of all that math is useful for me. But to wiser minds than my own, probably including yours, there are actually mathematical ways to really, with high degree of accuracy, predict what somebody is going to do. And this is fascinating because as you know, one of the hardest things about your role is managing not the systems, not the protocols, it's the people. It's the people. People are complex. Practices are just complicated. And so we have simple problems, we have complicated problems, and then we have complex problems. And complex problems mean that there's no guaranteed way that anything is going to go. It's kind of a crapshoot, but we have a range of probabilities of where this is likely to go. And so inside of, uh, if you haven't already, uh, I recommend as an kind of an intro to this topic, watch the movie A Beautiful Mind with Russell Crowe. It's a true story about John Nash, who's really considered one of the fathers of game theory. And, uh, the movie just shows what a kind of a fascinating but crazy character he was, but you start to see the world through the eyes of somebody that looks at everything as mathematical probabilities, and it's very interesting. So why do I mention this? What could this possibly have to do with us as we manage humans in the systems and businesses that we run and are responsible for? I asked if you know anybody who is cruel in conflict because inside a game, and I'm going to even refer to kind of a conflict or that argument that you last had with that cruel person, there are incentives, as I say, there's things that they stand to gain and things they either want to protect or avoid the loss of. I've shared before that one of the most revelatory insights that happened to me years ago is this simple discovery. All anger is fear. All anger is fear. And if you don't believe me, I'll give you an example Road rage. Road rage is so pervasive. The United States, for some reason, just filled with angry people on the roads, more so than any country I've ever spent time in, and I've been to a lot of them. I don't know what that's about, but I know what it's about at the root level. When somebody indulges or engages in road rage, it's because at some point they were threatened. Maybe you moved over into their lane too close, or you didn't indicate, or someone cut them off, and there was a moment in time where that dad, that mom kind of swerved and realized, "I've got my kids in the back," or, "I could have gone into the ditch. I could..." They are suddenly in touch with the risk that they were previously blind to, the realization that real loss was this close to my experience. And as that fear shows up, there is this need to defend, and the need to defend, in the case of road rage, one of the most pointless examples of anger turning into fear... Excuse me, fear turning into anger. I'll rage alongside you, and I'll use my hand gestures to tell you that you're number one, and, uh, weave in front of you, whatever the case might be. Uh, this is an instinct to preserve ourself after the fact. We can game this out further, where we can ask ourself, "Whenever I'm angry, what is it that I'm afraid of?" And this is not a great question. I don't like having to ask myself this, but man, do I like the value that it gives me. 'Cause I have to get in touch with the fact that, well, I was afraid of, I was afraid of looking stupid. I was afraid of coming across as weak or ignorant. I was afraid of being revealed for not having done what I said I would do. Any number of these things. There is always a fear of loss of some kind: status, power, money, physical safety, authority, respect. Any number of these things. And if you can indulge me for a moment, think about the last time you were angry, just in this moment. Take yourself back to when you were last angry, not just inside, but where you, you actually acted on it, where you were-- you sniped at someone, or you lashed out, or maybe you didn't do that. Maybe you're, you know, the Bodhisattva. But I think we've probably all done something like this in the last week. Might have even been an offhand comment in office that you go, "Ah, didn't have to do that." If you'll play along for a moment, by a show of hands, anybody got something in mind when you got angry? Great. Let's go back to that. Go back to that moment. If you were to ask yourself that question now, "What was I actually afraid of?" And you don't have to share this, but it would be super valuable for the rest of us. If you could name it in a word, if you're brave enough, put it in the chat. What were you afraid of? Uh, what were you afraid of in that moment? I can tell you for myself, if it's helpful. Um, I'm trying to think of my most recent example. Uh- Uh, oh. I made some kind of pithy comment at somebody. It was like, "Well, of course," blah, blah, blah. And the moment I walked out of the room, I realized that I was kind of out of integrity. I had said that we would leave at this time, and we didn't, and they were frustrated. And so I, instead of taking responsibility for that, I was afraid of the revelation that I was out of integrity, that I'm the reason we're running late. Wasn't a big deal, but it was enough for me to have to catch myself and say, "Man, what was that about? This came out of nowhere." Self-preservation. I was actually to blame for us being late, and if you're anything like me, nothing that I did in that moment helped. It just didn't help. Uh, that shot across the bow, that smartass comment didn't help. What did help is me walking around the corner and being like, "Oh, I am afraid of being revealed for being late, being behind the eight ball, not being a man of my word," whatever the case might be. It's always available to us, but it's just a question away. In game theory, there are high-probability winners and high-probability losers, and there is one critical distinction, though there are many elements to the power of the respective parties to come back to the point about not wanting someone to win. There are, are a number of things. There's information, there's the resources they have, the allies, the... And this is all codified by a phenomenal mathematician from Hungary named John Harsanyi, somebody I reference a lot. Wrote a paper in 1961 that got him the Nobel Prize. Fascinating. I don't recommend it, but I find it great. It might be unnecessarily burdensome and time-wasting for you. So there's a number of components to the power that individuals will have in a game, but there is one thing that we pay the least attention to Timelines. Timelines. I've used this example in the past, certainly with the sovereigns themselves. You can tell me, uh, if we think about, uh, Tesla. Tesla, of course, the rockstar company. Tesla lives and dies by 90-day quarterly numbers because its CEO gets stock options according to what happens not to the production, not to the profitability, but simply the stock price. If the stock is up, they get more money, the CEO. They are being rewarded on rolling 90-day windows, and it's not unique to Tesla. This is big corporate America's default state. Why do I mention this? Well, I want to also point out that we know who the CEO of Tesla is. Interesting. By contrast, across the Pacific is a little company you might have heard of that also makes cars, and it's called Toyota. Toyota is the number one vehicle manufacturing company in the world, and I would bet good money that not one of you can name the CEO of Toyota. There's something here for us, and I, I so appreciate the sophistication of our group and community here because we can have these conversations, and we can actually tether them to our actions. So stick with me. That's where I'm going. We don't know, well, I don't know who the CEO of Toyota is. That information has not come to me, and it's not important enough for me to seek it out. As opposed to a ninety-day quarterly stock price target and investor call, Toyota is working with a one hundred-year business plan. One hundred years. And that one hundred-year business plan is constantly updated, meaning they are working toward a goal of an eternal goal, if that makes sense. It's also worth pointing out that whereas here we have deities, we have iconic rock stars of capitalism. By contrast, one company has a one hundred-year business plan. Which one do you think is gonna win the long game? Who's gonna win the long game? Who will we still be talking about fifty years from now? Which company? Historically, it is the player that is playing the long game that wins. Historically. When we think about, the person going all the way back to the question that I'd had about, who it is that's showing up angry in, in conflict, this is somebody that has decided that they are this moment. The risks to them in this moment is so large that They will sacrifice all future benefits, including your kindness, your affection, your respect, etc., entirely for this moment. Just for this moment. And this has serious implications for us. What it means is that this moment is all that matters. So game theory pretty much proves that the long game is not a strategy that most people can execute. It's because it tends to require, a negative short-term position, meaning I will give up this battle to win the war. I will concede to play the long game. I will give up the short-term price in exchange for a real larger advantage down the road. This is the ability to defer, benefits to me. Most people can't commit to this because they, their threat detection system reads current loss as an existential failure. That's their threat detection system. If, if I lose this argument, if I don't bury you with bluster, it's an exista- like who am I? You won't respect me. You won't whatever it is. I'm going to lose something. It's an existential risk. That's what they actually think. What this actually is, though, is a really vicious, short-sighted way of moving through the world. It's having people optimizing for the value, the visible in this moment. That's all. And they actually sacrifice their position kind of on the chessboard. The people who constantly win have better information, which is to say that instead they accept that losing now, which is to give up something now, will pay off much bigger later. What those angry individuals, to use one example, uh, w- what is lost on them is essentially that they are quitting the game before it's really started. Before the game has really begun, meaning they don't understand that it is a multi-part game. Stick with me. I'm coming back to you as leaders of the businesses that you're in. they overlook the fact that this is an iterative game. The win that they got today by being right about who left the closet open is going to impair your respect for them tomorrow. More important than that, it's gonna undermine your trust in them, and I think you know exactly what I'm talking about. That person that was completely incapable of being wrong in that moment or conceding to where they were off track, taking responsibility, they see the short-term dopamine hit. They win, haha, and they leave the room. What they don't realize is the price they paid for that temporary hit is your trust Your trust. You have people on your team that reflect this to you, and we work around this, and it's okay until we realize the price others are paying instead of just us. By show of hands, how many people have walked away from a, a high consequence engagement with an employee and felt like you were on the losing side? Okay, all of us. Great. How many of you still feel that way today? That's exactly it, because you're playing the long game. You're playing the long game. That person probably isn't with you anymore, and if they are, they're not gonna be for much longer. They don't understand how they are eroding your confidence in their abilities. So what do we do about this? And again, this is beautifully mathematically backed by, uh, a game theory. What do we do about this? Well, the first thing we can do is start with ourselves, which is to say to audit the way that we are showing up in those high consequence conversations. And separating the difference, as we discuss all the time, our best performance versus our worst, which is showing up in a way that says, "Do I wanna be right or do I wanna be effective?" That fork in the road immediately brings you to a higher level of showing up. We confuse being effective with being right or being right with being effective, and typically this hap- maybe it's just me, but it's happens too often. We feel like we need that person to know that they're wrong when that is not the win. The win is to be effective. We cannot actually make progress. The only reason we would make progress by pointing out something that was done wrong is so that we can correct it. That's the only reason. This is why beginning any sort of inquiry with who and why and how, as opposed to, as I've shared many times, the best question that is only always relevant, which is, "Has this happened before? Has this happened before?" We completely dehumanize it. We de-weaponize the moment where we need, "Oh, I'm gonna tell them." I do this, we'll do this, and I just go straight through this kind of Occam's razor, slice straight to the core issue: Has this happened before? Why? Because if it hasn't happened, cool. We've got a problem that's been hiding in plain sight all this time that we get to build a system and a solution for right now. Or, "Yes, it's happened before." Great. Then we've either got no plan, and we should build one. We've got a plan, and we just don't use it, or we've got a plan, and it's just a crappy plan. Either way, we actually move forward. Either way, we make progress. Either way, we are effective This is what it means to play the long game, and you know this by your lived experience. You know this every time you go home and you have that feeling, and your spouse gets to hear about it, of how you're just so tired of XYZ. This one thing, that is you paying the short-term price. And I wanna say you're welcome, I respect you, and congratulations. To the extent that there is an end date for this behavior, you don't need to pay this price in perpetuity. That's not the issue. What bothers you is thinking you will. But based on the tools that we have here, the philosophies that we all carry, there's a finite... Th- th- that runway for that person is only so long, and the conversations that we've had here with our ladies up north are evidence of that. They did everything they could. Guaranteed, these two ladies that kicked off our call today went through the whole process. How many times did they go home to their spouses and say, "Ah, this short-term price, short-term price, short-term price"? At the same time, infrastructure put in place, guardrails, reprimands, feedback loops, and that person is unemployed. They got the benefit of being right twenty-five times, and it cost them their job. This carries over to our relationships. It carries o- in relationships in all different domains. I would like to spend more time on this, but for now I just wanted to plant this seed because there's a number of tools that we can pull out of this to help our wellbeing in those short spots where we feel like, "Man, I, I know this is temporary, but it feels like it's temporary every day. I think it's temporary thousands of days in a row." And I would like, with your collaboration, for us to pull some tools out to protect these energy levels, to protect our wellbeing. But for now, I wanna just remind you that you're doing this for a reason. You're paying these prices because you know that unlike the opponent, the other party, you know that the short-term hit is not how to win. A century-long company is not built with ninety-day stock price targets. You know, as I've shared before, your life would be radically improved if you did heroin for about three weeks. About three weeks, and then destruction. Now, of course, I'm not recommending heroin. Just making the point that this is exactly what happens. That short-term hit will only cost you the rest of your life in, in that example. So we, the leaders, those of us charged with shepherding others, the scar tissue that you have, the bruises and the bumps and burns that you've incurred are in the service of a bigger vision for you and the organizations and teams that you run. And I want to say well done and congratulations. And you're so welcome. Uh, this is the scar tissue of triumph over the long game. Over the long game. More to discuss here. More specific application for us to come up with. How can we protect our well-being in the interim? And more importantly, how can we help the bridge in understanding now that we know this between us and the leaders that we can spot that are coming up that are not yet in touch with us? They don't know that. They don't know the price that they will pay for now for the long-term benefit. I'll stop there.

Speaker 20:38

That's it for this episode. Thanks for being here. Hey, there's only two things that you have in your life, your time and your attention, that you've given both to me for these few minutes of today means

Speaker 2 20:49

everything. Cheers.