21 September 2024
Applying game theory to project management is the winning strategy
Have you ever wondered why stakeholders and those on your team are not working within the same processes and framework as you? It seems that they are not playing by the same rules; they are playing a different game. Well, fear not.
Game Theory introduces us to higher order thinking. It uncovers the rules of the game that your opponent didn’t even know they were playing. This will allow you to anticipate the most likely outcome, so that its in your favour.
The study of Game Theory is the study of strategic human interactions.
Project Management is the perfect environment for Game Theory to play out. We can see Game Theory in everything from Project Initiation (contract negotiation) to Project Control. Just take a moment to look out for them. Lets examine the different types of games that exist and look at some strategies that can be best used to tackle them.
The types of games played in Game Theory
The Infinite Game – A scenario with no end, such as a business operating in an industry.
The Finite Game – Such as a fixed schedule project. Of the Finite Games, there are many types;
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Cooperative Games – where your stakeholders are partners.
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Non-Cooperative Games – where stakeholders look after their best interests & not the projects. This is discussed later under ‘Prisoner’s Dilemma’ section
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Normal Form Games – simple choices that are represented in a matrix. Should you accept a Change Request or not? Access the impacts to the project timeline.
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Extensive Form Games – complex choices represented in a decision tree. Should you accept a Change Request or not? Is this change an MVP to enter a particular market? If you enter & don’t have it, whats the impact. If you delay the Go-Live in order to add it, will the opportunity or market have moved on?
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Simultaneous Move Games – where the players are unaware of the other players strategy. This can occur in a vendor relationship where the impact of requesting a Go-Live to move is not known & may not be as disastrous as first stated. Perhaps the client already built contingency into their plan. But in this game, you must raise this as an agenda item in an upcoming meeting.
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Sequential Move Games – where detailed knowledge of the other players strategies is unknown. In this instance, you can deduce or eliminate certain strategies through a decision tree analysis. You will probably be unclear of a stakeholders intentions, especially if no information is available. In the above scenario, could you change the game from a Simultaneous Move game to a Sequential Move game by waiting to see if there are other issues that could cause a delay from the client, before raising the point of a change to the Go-Live date?
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Constant Sum Game – where everyone wins to some degree.
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Zero Sum Game – where everyone loses.
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Non-Zero Sum Game – in these Coalitional / Cooperative games, the players win together when they work together. Just like a project.
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Symmetric Games – where the same strategies are used by all players. Project Management can be a symmetric game where we all know the rules and play along.
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Asymmetric Games – where the strategies used may not always be the same. If someone is not following the rules or ‘plays to a different tune’, are they playing an asymmetric game?
The best way to approach the games
For all of the above games, you should be asking yourself the following four questions.
- What are all of the possible outcomes that could happen here and what is each payoff?
- For each possible scenario or choice what are the subsequent (what if) scenarios and what is the other player likely to choose?
- What is your best response to this choice? If this is the path that is chosen what is the best outcome with the biggest payoff in that scenario for you?
- Put yourself in the other players shoes, what are they most likely to do and what should your best response be? Do you need to do anything ahead of time to prepare for this?
In any instance where there is repeated engagement and interactions,
the best approach is
firstly
for you to build trust and then follow the Tit-for-Tat strategy. Trust is built from your reliable patterns of behavior. Trust is built by adding value, by being cooperative, open and honest and a clear communicator. Trust is built by applying your expertise for the betterment of the project.
Some Game Theory background & Project Management.
The concepts of Coalitional Games and the Prisoner’s dilemma are fundamental in project management. Using Game Theory, managers can understand the strategic behaviors of their stakeholders and adjust their strategies accordingly. There are many
practical uses of Game Theory within Project Management and this knowledge of Game Theory will also help you identify the possible strategy of a stakeholder. The following sections explain the principles behind these concepts in more detail. In addition, they will explore the practical application of Game Theory in project management.
Coalitional Games
A game theory analysis enables you to understand the point of view of all players in a situation and how the strategies of each individual can make the situation better. It helps you choose the best strategy in order to maximize your own profit or that of the project coalition you are managing. It can also help you defeat your opponent (business competition) in a zero-sum game.
Prisoner’s dilemma
The Prisoner’s Dilemma illustrates how we deal with conflict. In this classic game, a pair of prisoners are put into an impossible situation: both suspects can be guilty of a crime. The authorities try to get both prisoners to confess. The prisoner’s dilemma is like this: if they don’t cooperate they get a year in jail (for fleeing the crime-scene). If they don’t cooperate but the other confesses, implicating the first prisoner, then the first prisoner gets 3 years in jail & the other gets none. If both confess then they both get 2 years in jail. And this is the Prisoners Dilemma. They are both better off saving nothing, but don’t know if they can trust the other, so its in both of their best interests to rat the other out. This leads to a sub-optimal, but dominant strategy called the Nash Equilibrium.
The Prisoner’s Dilemma can be viewed as a moral dilemma. It can be used as an opportunity for cooperation or an incentive for people to turn against one another. In either case, the outcome is similar: both parties gain something from cooperation.
If this scenario happened multiple times, then another solution to the Prisoner’s Dilemma is tit for tat. In this scenario, one party begins by cooperating with the competitor and does the same thing as them the next period. The competition will most likely cooperate, but they won’t make as much profit. Therefore, the best course of action is to choose the more cooperative option. During a project, where there is repeated engagement and possibly multiple vendors and stakeholders the best project outcome will depend on the tit for tat strategy.
In Project Management, as in all of life’s engagements, building trust it the key to success.
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