Strategic Thinking And Business: Why Being A Good Person Really Is The Best Thing To Do
Game Theory is the study of the ways in which interacting choices of economic agents produce outcomes with respect to the preferences (or utilities) of those agents, where the outcomes in question might have been intended by none of the agents. -The Stanford Encyclopedia of Philosophy
Recently, a mentor of mine mentioned several rules for success in the business world. One of the first rules he mentioned was to “do the right thing.” It got me thinking, why is this so effective? Why is this piece of advice, though seemingly cliché so effective?
The fundamental issue at hand — most individuals treat all market transactions as zero sum games, meaning that, for you to win, the other person has to lose. Market transactions (in the absence of coercion) are inherently positive sum games. If you consent to a market transaction, you profit from the transaction.
For example: I have a book on game theory. You have 25 dollars. I am willing to give you the book in exchange for 25 dollars. I exchange the book, for the money, and we are both on our way.
Most people would agree that the above example represents a positive sum game, but what about the following case? I am a poor tenant farmer in Southeast Asia. I am near starvation, but my only job opportunity is work in a sweatshop. I start working in a sweatshop for 25 cents a day. Is this still a positive sum game? Yes it is. although far from an ideal situation l, I benefit from my decision to work in a sweatshop. I am not arguing that the political climate in my country does not limit my choice sets in a way that makes me disadvantaged, but we are nonetheless made better off.
If market transactions are positive sum, win-win, then why do the typical business person try to” screw the other guy”? Enter the prisoner’s dilemma.
You and I were caught by the police for robbing a bank. Each of us is offered a deal. We can both snitch on each other, and we both get 10 years in prison. We can both say nothing and each get a year in prison. However, if one of us rats and the other doesn’t, the person that snitches gets 0 years, and the person that stays silent gets 15 years. You cannot communicate with the other person, and you have no way of knowing what they are going to do.
In this situation, individuals almost always default to the square highlighted in yellow. Why, you may ask? Because the game only happens once, the outcome will almost always revert to the highlighted square, leaving both players worse off than if they both kept quiet.
Individuals in business tend to think all interactions end u as pa zero sum game, but one can draw a clear distinction between most business deals and the prisoner’s dilemma outlined above. Many business deals, such as paying a vendor for services due, are ongoing or repeated. Ine repeated interactions with a partner in the prisoner’s dilemma situation, the optimal method involves keeping quiet at first.. If your partner keeps quiet too, you continue keeping quiet. If your partner snitches, you retaliate.
As you may have noticed in business and in life, morality comes into play. In fact, morality may have evolved as a method for solving prisoner’s dilemmas just like these. This is why the business advice “be a good person” makes good common sense, even if it may sound cliché. Behaving well to others really will help you out in the long run.
For more information, and to play your prisoners dilemma, check out the link below: http://serendip.brynmawr.edu/bb/pd.html