Over the last few months I’ve found myself becoming very interested in the world of Game Theory a branch of maths and science which seeks to help people make more intelligent and strategic decisions. Though the ideas in the game theory canon have been around for decades they really took hold during the Cold War with many in the military and government at using the ideas of game theory to make life and death decisions.
It’s unlikely as marketer the choices you have to make on a daily basis may not have the ramifications of nuclear conflict but they could be improved by having a greater understanding of Game Theory.
With any academic area with decades of research it would be tricky to summarize it all in an easily digestible blog post, but I wanted to talk about one of the most well known examples of Game Theory in the hope it’ll give you an idea of how the ideas can be applied to digital marketing.
The Prisoners Dilemma
The prisoners dilemma is a great introduction, two prisoners have be arrested for a robbery and separated from each other.
Both are approached by a police officer with a deal. Imagine you are one of the criminals, the deal offers that if you confess and your accomplice denies the crime the accomplice will go to prison for ten years and you get away free, if you both seek to do a deal you get 5 years each. If you have the other option and keep quiet but your accomplice does a deal they he goes free while you face ten years. But if you both keep quiet you will only get charged with a lesser offense which will carry a single year in prison.
So the best outcome for you and your accomplice is to keep quiet right? the total duration of prison time for both of you in two years compared to the ten years in prisons of all the other options. So you both keep quiet?
But if your accomplice thinks you’ll keep quiet the best option for him is to do the deal that way he would get away with no prison time with you taking the full ten years. Suddenly keeping quiet doesn’t seem such a sensible decision does it?
In fact the reason you don’t know what your accomplice will do means you should always do the deal, you’ll either get five years or go free and never do ten years…
This table expresses the situation discussed.
You confess (defects)
You stays silent (cooperates)
He confesses (defects)
|Each serves 5 years||You: 10 YearsHe: Goes Free|
He stays silent (cooperates)
|You: go freeHim: 10 years||Each serves 1 Year|
Now this is a simple game, and even in simple games people rarely make decisions this rationally but envisaging choices in this way enables you to think about your marketing decisions in a very different way.
Replace the prisoner dilemma with a PPC auction, you and your competitors would benefit if everyone reduced their bids, you’d all pay less, but what if someone takes advantage? they reap all the rewards.
Or envisage this type on brand bidding, or social voting or whether to read one news story vs another.
I’ve only scrapped the service but if I’ve piqued your interest get on Wikipedia’s pages about Game Theory and get a cup of tea you may be sometime.Posted in Strategy | Tags: game theory, strategy