Get it Done Guide: Unlock Better Decisions with Game Theory

The most valuable skill in life and business is thoughtful decision-making.

The quickest way to be more thoughtful is by choosing an analytical framework to quickly asses situations, and apply it to real-life situations.

Unfortunately, many people don't dedicate the time and effort necessary to learn how to make decisions, instead they rely on impulsivity and intuition - a potentially deadly mix.

When they do seek improvement, they're often led astray by hollow ideas which are ultimately unapplicable in daily life.

I know, because I wasted years making the same mistake.

But, my loss is your gain.

Insert: "Game Theory" - the highly mathematical study of interactions between decision makers, used by everyone from poker players to military strategists.

The field combines math with human behavior, and while the numbers get complicated, the frameworks are not.

Once you realize a "game" is not limited to blackjack, but applies to every social interaction, you can use game theory as a simple analytical framework for decision-making.

Here are 4 game theory principles that will save you from dozens of painful decisions:

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Principle 1: Set the Agenda

Hearing this completely changed the way I thought about approaching problems and communicating with others.

Here's the concept:

Despite how it may seem, the decision-maker is not the most powerful position.

Weird, right?

It's actually the agenda setter that wields the most power.

According to game theory, the agenda setter controls the options another player can choose from, which significantly influences the outcome of the game by structuring the decision-making process to their advantage

Oversimplified Example:

Imagine you're in charge of planning a vacation with two friends. You prefer to relax on the beach.

Friend #1 wants to go to the mountains, but you feel the beach would be their second choice.

Friend #2 wants to go to a big city, but you're afraid the mountains would sounds good to them too.

The three options you'll present are: beach, city, and campground.

In this scenario, even though both friends like the mountains, it's not an option. Therefore, Friend #2 choses his top choice (city) and Friend #1 chooses his second choice (beach).

Paired with your vote for the beach, you're headed to Cancun.

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Principle 2: Never Strike First

Your parents taught you to treat others how you want to be treated. They were wrong.

Treat others how they treat you, BUT don't be a jerk first.

Most situations are non-zero sum, meaning that there is the possibility of mutual benefit.

Tit for Tat, arguably the most well-known game theory strategy, gives us the following idea.

When faced with the choice between working with or against a counterparty, always work with them.

You should assume the counterparty has good intentions and that you can both benefit in any scenario.

If they also choose this, continue to cooperate when interacting in the future.

However, as soon as the counterparty deviates, you should follow.

Continue to play their last move in each future scenario.

Tit for Tat.

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Principle 3: Prefer Small Groups

Have you ever wondered why large organizations and bureaucracies are so slow and ineffective?

Think about this.

Behavioral psychology tell us that humans tend to prefer loss-aversion.

Additionally, large groups of people have more variables (personalities, motivations, etc.) which make them more difficult to predict.

As a result, large groups foster lower levels of trust among members.

So, ask yourself:

Why exert myself if I don't know my team will do the same, and my effort won't go to waste?

After all, we already established that humans don't want to lose what's theirs -- even something as simple as time and energy.

To unlock higher performance from groups of people, make them smaller.

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Principle 4: Incentives, Incentives, Incentives

This one is simple.

Understand what the other side yearns for—their version of victory.

Map out the choices available to them that pave the path to this triumph and stack it against your own goals

This way, you'll get why they do what they do, and you'll be better prepared to guess their next moves.

By identifying their incentives and available options, you can reframe your own decisions.

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TL;DR

Use these 4 principles to level up at life and business.

1. Set the agenda

2. Never strike first

3. Work in small groups

4. Incentives are everything

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