John Nash’s Game Theory Applied To HR & Leadership
September 29, 2015 Leave a comment
Nash’s Game Theory has intrigued me of late. I like how although it is often used in economics, Nash’s Game Theory can be applied to everyday situations including how people can make engaged and thoughtful businesses decisions.
That said, this theory wasn’t all 100% Nash’s. Using a technology term, Nash “upgraded” an existing theory proposed by von Neumann and Morgenstern.
von Neumann and Morgenstern Zero Sum Game
Von Neumann and Morgenstern proposed that the best decisions is when individuals approached decision-making as a zero-sum theory, or (in my interpretation), if I win you have to lose. The concept is that if we as individuals all work at winning, in the long run we will all do better.
Thankfully, most real-life situations are not usually zero-sum so this theory often falls short.
Nash’s Game Theory
Nash saw a better way to make decisions by pushing the zero-sum theory closer to altruism (again in my interpretation), altruism being an ethical philosophy in which the happiness of the greatest number of people within the society is accepted as the greatest good (source business dictionary). Nash believed that the best solution is when we consider what is best for the individual (zero-sum), AND the group.
I agree that zero-sum is a poor way to run a company or a department. Considering that when one person wins and the majority lose is disheartening. From the point of view of a business leader, my belief (and there are many general studies that support this), is that if work is a zero-sum game, it destroys collaborative team dynamics, individual motivation, costs go up, production & quality goes down and soon employment turnover goes up.
But Nash’s theory provides a simple mathematical equation for modeling any number of competitive situations. Nash’s equilibrium as it is sometimes called, offers the idea that a best response equilibrium exists. Again, from the point of view of a business leader, consider it a theory that guides us to use empathy and our listening skills to prioritize our actions so that we can make decisions that serve our purpose and do the best to support others impacted. Those impacted can represent our co-workers, clients, investors or even the environment.
Fredrick Herzbers Motivation – Hygiene Theory
If you let me take a leap of faith, in the HR world we can better support the collaborative idea of individual and team benefit by using elements of psychologist Fredrick Herzbers Motivation – Hygiene theory as guides to what benefits the company (ROI because it is important and what almost all decisions include), AND the greater good.
Fredrick Herzbers Motivation – Hygiene theory studies Factors for Satisfaction and Factors for Dissatisfaction (which are not opposite and which I promise to write on soon). For example, Herzberg’s research identified true Factors for Satisfaction motivators were:
- Work (as in respectful work)
How many times do you make decisions also considering the impact those decisions make on Herzberg’s 5 Factors for Satisfaction? If you don’t, you may be making decisions that have short-term gain but long-term negative impact on productivity, employee engagement, quality, customer satisfaction and employment turnover… all things that are very expensive costs for the organization.
Staying with the idea of HR, motivation and job satisfaction, one of Nash’s truisms is that even when working toward the greater good, there is often more than one best response. This was an early criticism of Nash’s theory, but one that I think we should celebrate. Why? Because choice and change are exciting. Because our personal and professional needs, goals, likes and dislikes are different which means that within a collaborative team where each person giving their unique best, there will be many ways for the team to meet their goal. If one person was taken away from or added to the team – the team would still find a great solution… but it would likely be a bit different.
The long and the short of it (that sounds like my dad speaking), is that if the purpose of economic theories is to predict which one (single), outcome will occur, Nash’s methodology doesn’t help. But, what it does do is give us space to explore options where we try to find a solution where we all win.
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