Leadership Lessons from Game Theory

Enjoying Simple, Not Easy? Please consider forwarding it to a friend. New to this email? Welcome! Subscribe here.

I remember sitting in my Econ 101 class peering around at the many tired faces that showed up for a 9am class on a cold, gray February morning when I first heard the term “Game Theory”. At the time, I was less than 3 months out of the Marine Corps trying to figure out what to do with my life, but quickly falling in love with economics. It was, to me, this unique blend of math, psychology, and finance that I found fascinating.

In class on that sleepy February day the professor was lecturing about Game Theory through the lens of the famous Prisoner's Dilemma, a brilliantly simple puzzle in which you must decide to “rat” (defect) on a fellow bank robber or “stay quiet” (cooperate) with your prison sentence determined by what your fellow bank robber decides to do.

If you rat and they stay quiet you get no jail time, if you both rat you each get eight years, if you stay quiet and they rat you get ten years and they get no jail time, if you both stay quiet you each only get 30 days. The game is brilliant because the best combined outcome is to cooperate, but since you don’t know what your fellow bank robber will do the “rational” choice is to rat on them.

Professor Robert Axlerod

While Game Theory is most often associated with famous mathematician John Nash played by Russell Crowe in the great film A Beautiful Mind and his “Nash Equilibrium” the research on Game Theory which was always most interesting to me is Professor Robert Axelrod’s research into how Game Theory explains cooperation in evolution.

In the 1980s Professor Axelrod devised a brilliant “tournament” based on a Prisoner’s Dilemma style game where statisticians, economists, and professors each submitted a “strategy” their player would take to maximize total earnings (this game used points instead of prison sentences) if the game was played multiple times (for an excellent full discussion about Axlerod’s tournaments I recommend this YouTube video).

Professor Axlerod summarized the lessons he learned from the different strategies used in these tournaments in his book The Evolution of Cooperation. From this research he came up with four principles which explain why individuals and organisms cooperate in an evolutionary sense which are useful for any leader:

1. Be nice: cooperation is key to success

2. Be provocable: if your opponent defects, you should defect the next turn, if your opponent cooperates, you should cooperate

3. Don’t be envious: avoid zero sum thinking

4. Don’t be too clever: clarity is required for cooperation

While these principles don’t translate 1:1 to leadership I like to think of them as four important characteristics: be kind, be firm, avoid envy, be clear.

Be kind

Growing up my Mom had a poster in her office that said simply, “Work hard and be nice to people”. I’ve always loved the simplicity of that creed. It is certainly the way my Mom lives her life and has shaped my thinking just the same.

As I’ve progressed in my own leadership journey I’ve come to prefer the work “Kind” to “Nice” as sometimes the kindest thing you can do for someone (or they can do for you) is to tell them when they’re falling short of a standard. This may not seem “nice” in the moment, but just like the friend who doesn’t tell you you have broccoli stuck in your teeth isn’t a real friend, the leader who doesn’t tell a peer or team member when they fall short isn’t a real leader.

Axlerod’s principle of kindness facilitating cooperation is an important one for leaders because it’s a reminder that even in performance driven cultures on ambitious teams the default should be generosity and collaboration. Without collaboration no team can build durable success. The tone for this collaboration is set at the top by you as a leader.

Be firm

Just as in the above point, it’s important for leaders to understand that they can’t be pushovers.

High performing teams have high standards which need to be held across the team consistently. If you realize you’re saying yes all the time or letting other leaders and teams dictate your agenda you aren’t doing your team or yourself any favors.

If another leader you work with does something you disagree with or undermines you and your team say something. There are many ways to disagree without being disagreeable and you can’t be a great leader, let alone a good one, if you’re a doormat.

Accountability and ownership are core leadership values of mine. As Patrick Lencioni says, “Failing to hold someone accountable is ultimately an act of selfishness.” I learned the concept of “firm but fair” as a Marine. All leaders should take that concept seriously.

Avoid envy

Nothing degrades your own influence and likability faster than envy of another’s success. Behind ego, envy is probably the biggest poison for any team.

While you should acknowledge and be aware of Machiavelli's teaching and writing to avoid falling prey to practitioners of these strategies you should avoid them yourself.

High school drama, incessant infighting, and an inability to celebrate the success of others never leads to teams capable of delivering differential returns over the long run. The world is small and life is long. Much of the opportunity I’ve had in my own career has come from trying to be an asset to others with no expectation of a quid pro quo.

Long term thinkers avoid zero sum thinking, great leaders should do the same.

Be clear

I’ve written about clear communication before, but it’s important to stress the value of clear action and behaviors as a leader also. Professor Axlerod’s research particularly emphasizes the value of predictability in enabling cooperation. Leaders can and should be steady hands at the wheel who are reliably expected to be calm and collected by their team.

Nothing is worse than a volatile leader prone to exaggeration, melodrama, and panic as your team spends more time worrying about managing your mood than they do getting results.

Clarity in action, behavior, and response by a leader promotes stability on a team. That stability drives sustained performance.

Conclusion

From Econ 101 and Game Theory to leadership lessons on building teams which succeed over the long run. Remember these four lessons about cooperation which should inform your leadership:

1. Be Kind

2. Be Firm

3. Avoid Envy

4. Be Clear

See y’all next week.