I decided that not enough cubicle dwellers or college students knew about relationship making and all the fun things that go along with it. So this ENTIRE week is devoted to creating good friendships and fun things about it. I will never use the N word at all or possibly try to avoid it as much as possible. So let’s begin with an article from Shivani Sopory about relationships and adding value through a game theory example. Yes, I am lucky to have much smarter than me friends:)
Game Theory Explaining Relationships by Shivani Sopory
What is a relationship?
It’s a connection between people, right? It can be business, pleasure, personalâ€¦and the list goes on. Everyday we are presented with opportunities to build relationships and to keep those connections. Andâ€¦well, I don’t know about everybody else, but I find it damn hard to make some of those connections last. So, sitting in game theory class, I decided to use something my professor was saying to some use (for once in my college career).
**Just a disclaimer, this post takes a serious turn for a little bit**
What is the general idea?
Using the fundamentals of game theory, a player will always maximize his payoff given the strategy of the other player. So, how does a person maximize their payoff in a repeated game without the other player defaulting (choosing not to cooperate).
Setting up the game:
In a typical game, if both players make themselves vulnerable (choose to cooperate) they get the maximum collective payoff, however, if one defaults and the other cooperates, the player that defaults gets a much larger individual payoff, and the other loses out badly. If both default, they choose not to be vulnerable to one another and because they protect themselves, the outcome is not bad, but it’s not optimal either.
So, what happens when you make this game into a repeated game? This can be represented by a contract it’s a relationship that binds two groups but there is definite end date to this relationship. What usually happens in this type of situation is that the two parties cooperate until the end of the relationship when the parties choose to default, resulting in a lower benefit for both of them. A player will default because they assume the other person will continue to cooperate in which case the player will receive a much larger individual payoff, but the other person will be left with nothing.
So then, how can a person make it so that a relationship continues to have the maximum benefit?
1) Make the game appear to be infinite. One way to do this is to provide no end date to a contract. This gives incentives for both parties to continue the relationship at the highest communal benefit in other words, it keeps you from getting screwed over.
2) Threaten/give the appearance of punishment if the other person defaults. A punishment can be anything that would provide a lower payoff to the other party, so things like a fine, or bad publicity, or threatening to never work with the other party in the future. This works because a person will chose to cooperate if the costs of defaulting are too high. It doesn’t work so well though, because the threat has to be credible, and it’s hard to convince other people that you will actually follow through on your threats.
3) Only work with “patient” people. Patient people are people that will value the long-term benefit over the short-term benefit. People who are short-term in their thinking will take the earliest opportunity to default if it results in more benefit for them initially.
4) Add Value (this is my personal favorite) CHANGE THE GAME! If you continuously change the benefits of the game, or add benefits to the game so that both parties have no reason to default on a relationship, and the relationship will continue with maximum benefits. Adding value can be cheap but still effective. For a restaurant, food is great, but food with a smile is even better; the smile adds value. If you are working on a project with somebody else, but you notice something that can be fixed outside of the project, give suggestions. It doesn’t cost anything to give extra advice, but it shows the other party that you have more to offer. By doing this, you increased both of your payoffs and you have the changed the game to your benefit.