Wednesday, October 7, 2020

Smart and Not-so-Smart

Harry’s poker-playing friend claimed that probability theory, and how to play your cards according to the rule book, was the easiest thing in the world.

But what separated smart players from the not-so-smart was the ability to understand how their opponent was thinking ...

Harry Hole, Detective,
according to author Jo Nesbo

Now, in project terms, we would like to think we don't have to worry about opponents. But, of course, that's not the case. Most practical projects at scale have a nemesis, either technical, managerial, or political.

Also, it would be great if we could all grasp "Game Theory" which lays out methodologies for assessing what your opponent is likely to do in the context of what you might be likely to do. [You can read some about this in Chapter 12 of my book, cover illustration below, "Maximizing Project Value"]

In effect "Game Theory" combines probabilities, rules for applying game rules, and methodologies for  making an 'informed estimate' of what others might do.

Stability and equilibrium
If you are working with probability theory in your project, then you are thinking and acting with some uncertainty in mind. As our detective friend says in the opening quote, just understanding some of the 'rules' around uncertainty estimates is not enough.

Coming to some sort of stable (and predictable) position in the project environment is perhaps the most advantageous outcome one could expect in an environment of uncertainty.

Perhaps the most practical utility of Game Theory, as applied to projects, is developing equilibrium as a stable and desirable outcome. Odd as it sounds, equilibrium is often achieved by accepting a sub-optimum outcome as a compromise outcome between 'adversaries'.

And why would you settle for sub-optimum? You settle because the alternative is more costly without compensating benefit.

The "Nash Equilibrium"

The Nash Equilibrium is an example of such an outcome, and it is explained in Chapter 12. In essence, you and your opponent agree to a compromise plan for which their is no net upside for either of you to divert from the plan. In other words, at the Nash Equilibrium, things are worse for you (and your adversary) if either of you make a change.

The counterpoint is obvious: as long as there are incentives for a more advantageous deal, stability will always be on the knife's edge. Recognizing whether or not you've achieved a Nash Equilibrium may be the smartest thing you can do.

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