Why I Teach Game Theory
Let’s clear up a little confusion. In science, the term “theory” doesn’t mean it’s unproven and just a ‘best guess’. A theory is something that is pretty well understood with some work yet to do. The theory of gravity is well demonstrated through experiment. We know what gravity is and pretty much how it works. We can predict results with an amazing degree of accuracy. Any yet what we know about gravity remains a theory.
Definition of “Theory”:
A scientific theory is a well-substantiated explanation of some aspect of the natural world, based on a body of facts that have been repeatedly confirmed through observation and experiment.
The theory of gravity is well demonstrated through experiment. We know what gravity is and pretty much how it works. We can predict results with an amazing degree of accuracy. Any yet what we know about gravity remains a theory.
Game Theory is like that. We know it works. We know how it works. We understand the underlying math. It is supported by a Nobel Prize.
Game Theory is not a game. It is a set of guidelines that can help you predict behavior. I don’t want to write 200 pages for you to read so I have to simplify. Game Theory is a means of helping you understand and therefore predict the behavior of your counterpart in a transaction. A transaction can be a sale or job interview or a presentation of your quarterly results. Anytime you are interacting with another party, it’s a transaction.
If you want the best possible outcome, you must understand what drives the other party. We all know this at some level, right? But to greatly improve your chances of success, there are other factors at play. You must first understand the other party, then you must give consideration to whether you have sufficient information to formulate a strategy.
Often I see sales teams over-incentivize a deal because they lack information. When we don’t understand why we can’t close the deal, we tend to cut the price. I’ve seen people cut prices time and again while getting to the bone only to discover the prospect had to wait until the new quarter to have the purchasing power!
If you understand Game Theory, you will better understand the other side of the table. You will strive for complete information. I cringe when I see bad negotiation in government. We all see that every day. I get emails often from former students who tell me things like, “since the class you taught us, I feel embarrassed sometimes at how badly things are handled by people who don’t get Game Theory”. Me too.
You will be a far better presenter if you understand the basics of Game Theory. That’s why I teach it. It will benefit YOU. Isn’t that a good enough reason?
Chris Reich, TeachUPresentation