Game Theory , Google and Project Management

At first glance the title seems to club disciplines which have nothing to do with each other.  Read further and you may change your mind.

Game theory is a discipline in mathematics that studies interactive decision-making, where the outcome for each participant or “player” in a game depends on the actions of all.

If you are a player in such a game, when choosing your course of action or “strategy”, you must take into account the choices of others. But in thinking about their choices, you must recognize that they are thinking about yours, and in turn trying to take into account your thinking about their thinking, and so on.

Take the example of a three person fight among A, B and C where each has to shoot the other two to survive. A and B have a 90% hit rate of hitting targets whereas C has a hit rate of only 30%.

Who do you think will survive ?

The answer is C! A and B’s best option is to fire against each other to eliminate the most dangerous opponent which leads to them killing each other while C survives.

Mathematician John Nash (of ’The beautiful mind’) fame had theorized what is called a ‘Nash equilibrium’ where if each participant in a game knows the options and their value for the rest of the participants, there is only one logical choice each participant will make. Any other choice will be less productive.

There have been further advances in this science including a Nobel prize in 2005 for work in this field.

A fresh example of how Game theory is being used in business is infact playing out in front of us.  The FCC bid to open up the 700MHz wireless spectrum for auction has Google, the FCC and the Telecom companies (AT&T etc) all employing game theroists to figure out what their opponents will do and how to strategize.

Interestingly enough, game theory type moves have already taken place without the auction even starting (auction  starts Jan 2008) . Google has lobbied for a rule that the winner has to allow devices free access to connect to the network (like the internet) - this is unlike the closed network policy of current wireless service providers. Google has also indicated it would step into the bidding process. FCC has agreed to the rule but with a catch, the minimum bid has to be $4 billion. This ensures Google doesn’t just pretend it will make a bid , but does so in reality.  AT&T in the meantime has said it will open up its existing network next year.

Lets evaluate  google’s options ?

a. Not bid - not a good option . Bids may come in lower than $4 billion and AT&T may not open its current network

b. Bid to win - again not a good option. It does not want to run the network, just build applications that use it

c. Bid higher than $4 billion but only just, so that it loses. This is the best option. It does not need to shell out any money but will get what it wants - a free network

Now, coming to Project Management . Game theory seems good for auctions, but how does it apply or help in project management.

The answer is pretty straightforward. On a day-to-day basis project managers need to resolve issues, put out fires so that the project stays on track. This involves mostly dealing with people , negotiating with them and arriving at a solution that keeps the project moving forward. The negotiation aspect of the above process is where game theory comes in.

Here are some things you can consider in your negotiation process :

What is the issue?  What decision are you trying to make?
Who are the players? Which players will have an impact on the success of your decision?
Develop a list of options for each player.
What are the goals of each player?  Always assume their goals and actions will be rational from their point of view.
What are the sources of gain?  Mutual gain is possible if players have different preferences, priorities, capacities, risk profile or beliefs.  Where mutual gain is likely, a negotiated outcome is possible.
Who can make credible commitments that might affect the game?
What is the time line?  Who is in a hurry, who can afford to delay?  Will players choose simultaneously, or sequentially?  Is this a one-time situation, or one of many repeated such decisions?
Who knows what?