Can Game Theory Help Decision Makers?

Can game theory help decision makers? “Sometimes” seemed to be the answer, in a wide-ranging dialogue between Dr. Thomas Schelling, recipient of the 2005 Nobel Prize in Economics, and William Mayer, senior partner of Park Avenue Equity Partners and former dean of the Smith School. The discussion was held at the BB&T Colloquium on Capitalism, Ethics and Leadership on Thursday, November 8, 2012. The annual event, hosted by the Center for Leadership, Innovation and Change (CLIC), is sponsored by BB&T and held at the University of Maryland’s Robert H. Smith School of Business.

Shreevardhan Lele, Ralph J. Tyser Distinguished Teaching Fellow of Decision Sciences, set the stage with a brief overview of the complicated field of game theory. Game theory is related to both statistics and ethics, said Lele, in that each is a framework for decision making. The framework of game theory is one in which your wellbeing depends not just on the decisions you make, but on the decisions those around you make. Understand and correctly predicting how your competitors will respond to your moves is a key part of game theory.

Lele illustrated this idea with a numbers game. He chose two random students on opposite sides of the auditorium and asked each to choose an integer between 1 and 100. If the total of the numbers they chose equaled 100 or less, he would give them each the amount of their number. If their combined numbers were more than 100, however, neither would receive anything. The students couldn’t consult with either other, so neither knew what the other would choose. But both students chose “50” as their number, ensuring each would receive a “fair” amount from the challenge.

“That is something a computer can’t readily understand,” said Lele, explaining how game theory and ethical frameworks interact. “Fairness or justice are not numerical concepts.”

During their dialogue, Schelling expanded on why the students both chose “50,” describing the complexity of anticipating another person’s next moves even while making one’s own moves. Arriving at a common understanding of the benefits and dangers that accrue to each player in the game is crucial to making the most beneficial moves, said Schelling. That is what allows players to deliver a believable threat, or come to a win-win solution.

Schelling’s examples ranged from his own experiences with designing the Marshall Plan to the highly charged moves made by global players during the Cuban missile crisis to some of the diplomatic moves between China and the U.S. Throughout the discussion, Schelling emphasized the importance of empathy, of understanding the values and motives of others, as the key to successful game playing. That’s what also makes it so useful for understanding the interactions we have with those around us in our everyday lives, said Schelling.

“Game theory isn’t an esoteric, far away, mathematical subject,” Schelling said. “It is happening all around you every day.”

Frank Auditorium was packed for the event, which included several hundred Smith students and a group of Smith Terps who work for BB&T. Daniel Waetjen, group/state president for BB&T’s Greater Washington, D.C., region, welcomed attendees to the event and spoke appreciatively of the value Smith alumni bring to the company. BB&T has been a strong supporter of the Smith School for more than 15 years, investing in student scholarships, the Dingman Center for Entrepreneurship, and academic program initiatives such as the Undergraduate Fellows Program as well as the Colloquium.

About the Robert H. Smith School of Business
The Robert H. Smith School of Business is an internationally recognized leader in management education and research. One of 12 colleges and schools at the University of Maryland, College Park, the Smith School offers undergraduate, full-time and part-time MBA, executive MBA, MS in business, PhD and executive education programs, as well as outreach services to the corporate community. The school offers its degree, custom and certification programs in learning locations in North America and Asia.