Use Game Theory to pick the Right Career
How you can use game theory to stay ahead of the market
In 1997, Richard Thaler, an American economist, conducted an experiment in the Financial Times — it was a guessing game. The readers were asked to submit numbers from 0 to 100, and the person whose number is closest to 2/3 of the average of all the numbers wins the game.
Game Theory
When you play a game of chess, your move depends on the opponent’s strategy, and similarly, your opponent’s move depends on your strategy. There is a strategic interaction between the two players. The idea of game theory is the same — our success depends on our own choices as well as the actions of others.
A key assumption in game theory is rationality. It is to assume the players of the game are rational. They know the setup of the game and make their decisions based on logic.
Another assumption is common knowledge of rationality. It is explained as follows: I assume you are rational, but I don’t stop here; I think a step ahead and assume that you know that I assume you are rational. Again, I don’t stop here and further assume that you know that I know that you know I assume you are rational… and so on. To simplify, each player knows that each is rational, and each knows that each is rational…
This indefinite loop of assumptions, which sounds like an episode of Sherlock, is called common knowledge of rationality.
In Richard Thaler’s guessing game, a Game Theorist may reason as follows: If every person guessed randomly, then the average would be 50, and 2/3 of 50 would be approximately 33. But I assume the players are rational, so they would’ve also have reasoned the same and guessed 33, then I’ll think ahead and guess 2/3 of 33 which is 22. But wait, I assume the players know that I know that they’re rational so they might guess 22, then my guess should be 2/3 of 22 which is approximately 14… and so on.
The answer isn’t important here, the thought process is.
Game Theory for picking careers
Now then, how can we apply the same thought process in picking the right career? The golden rule of the market is that you’re paid more if your job has a high demand and a low supply, and our “success” depends on how well we can leverage this universal rule.
Let’s see an example through the eyes of a Game Theorist:
Data science has been called the sexiest career of the 21st century, and the Internet claims the opportunities in this space are exploding. I assume all the players are rational, and so they’ll choose this career because of the high demand. Now, because everyone is going to choose data science, I’ll think one step ahead and choose to create a course on data science to help up-skill the supply. But wait, it doesn’t stop here; I assume the players know that I know they are rational. So, they’ll think the same and choose to create a course. Again, I’ll think a step ahead and reason that if the players choose to create a course, then I can choose to create a platform to host the courses... and the cycle of thought continues.
In the real world, however, the assumptions of rationality and common knowledge of rationality rarely hold true after a certain level because our cognitive capacity is limited.
Conclusion
Choosing your career is both a rational and an emotional decision. All this theory is useless if you don’t like what you do. However, when you think of game theory as a tool to enhance your thinking, and aid in your decision making, you’ll be ahead of the majority.
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