If you haven’t figured out by now, I have a degree in Economics. Game theory as published by the Stanford Encyclopedia of Philosohy is “the systematic study of interdependent rational choice. It may be used to explain, to predict, and to evaluate human behavior in contexts where the outcome of action depends on what several agents choose to do and where their choices depend on what others choose to do.”
I often hear people saying that they have to wait on making a decision because XYZ business unit is working on something and decisions must await the outcome of that process. Or on the other hand, ABC project is in process and their decision will impact future needs. One clear and common example is when Finance is looking into Oracle and if they buy it, HR will end up on Oracle as well. My question is this: Why do we halt planning just because someone else’s decision might change our decisions? Why don’t we just build in multiple sets of assumptions and get a picture of what we’d do in various scenarios? This would do at least two things for us:
- It allows us to get ahead of the game, realizing what our possible best options are in these scenarios and adequately preparing for them when the time arises, instead of being 6 months behind.
- It allows us to realize what our own preferences are. It’s entirely possible that if XYZ happens and we are forced into the PDQ decision, we won’t like PDQ. Therefore, early planning will allow us to influence the XYZ project.
Basically, evaluating game theory combined with a probability equation gives us a pretty decent picture of the future. If there is a 20% chance that the absolute best solution for HR will occur, and a 60% chance that the least optimal solution will be necessary, would it not be important to clarify the spectrum of possibilities now? If the least optimal solution has a significant increase in overall costs from the best solution, would the stakeholders of the other, contributing project want to know? Hopefully so.
Imagine taking game theory to the benefits world. We might practice this already and just not know it. Here, we’re actually playing with a game theory that is in the outcomes of our choices, not inputs. We choose a portfolio of benefit solutions and our costs are driven by the choices of our employees. Based on some educated guesses, we can understand quite accurately what our costs will be, and attempt to influence those costs with various vehicles. For example, communications and learning can be used to influence choices or even improve healthy behaviors.
I don’t know that we formally utilize game theory enough. It’s an incredible way to understand options and make decisions before you’re stuck with a limited set of possibilities or an environment that was created for you.
4 responses to “Game Theory and HR”
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1.Game Theory and HRsystematichr.com2 commentsSocialRank If you haven’t figured out by now, I have a degree in Economics. Game theory as published by the Stanford Encyclopedia of Philosohy is “the systematic study of interdependent rational choice. It may be used
Bring on those Nash equilibriae.
Seriously, you have a great point here, and one that I’ve been ranting on about for years. Applied Mathematics applies to HR. There is a vast toolbox full of wonderous things left unopened. Why let finance have all the fun?
Yes, Thomas, there are real and rich pickings from bringing things such as game theory, operational research and behavioural economics (something that wasn’t part of the syllabus when I was reading economics at uni) into HR. The big issue that I’ve found is that there is a reluctance within most HR departments of accepting these topics / ideas. Lexy Martin was right in the comments to the last post when he mentioned story telling based on these approaches.
My economics education tended towards things such as micro, risk, game theory and econometrics. What I do find underlies my work now is an economist’s understanding of how people relate to stimuli. I’m currently in a team where most have advanced degrees in organisational psychology and the links between both disciplines are fascinating.
The point you make about parallel processing is a good one. In fact, “The Discipline of Market Leaders” by Michael Treacy ultimately brings this point out, but in a different context. Allow me to explain.
Treacy’s point is in order for any business to succeed, it must excel in one of the three value propositions – Customer Excellence (Nordstrom’s, The Ritz Carlton), Operational Excellence (Wal-Mart, McDonald’s) and Product Innovation. (Google, Nike). Not only must it excel along one of these axes, but it must also be at parity for the other two.
Treacy then defines the attributes of each of these type of organizations. This is where your parallel processing comes in. Organizations that focus on product innovation have multiple R&D teams pursuing the same goal and objective (yes, it sounds redundant and inefficient) but ultimately these efforts pay off handsomely. And, the best of the best don’t merely limit parallel efforts to R&D. The philosophy is baked into the entire enterprise. Pretty cool stuff!
Unfortunately, this is pretty ethereal stuff particularly for HR so when you talk about it, you get a bizarro look from them. I guess it’s up to our readership to embrace these concepts and introduce them to HR one at a time. Oh well, time to make the donuts.
I hope I am NOT the first one out here to share this but scenario processing has been in use for quite a while – this has been in use with a few multi-implementation projects where the thought or selection process for one system is not in cynch or needs more time than others. Most of the projects we work on involve the implementation of more than one system (timekeeping and payroll, payroll and finance, timekeeping/payroll/benefits, etc).
Scenario thinking goes long way in providing a means to open ideas that weren’t even in the original scope of work as well… particulary when a systematic approach to the original project plan was not in play in the first place. Can’t tell you how many projects have not had a full spectrum full needs assessment performed at the very beginning. Many will claim that a needs assessment has been done and brush off the though of re-visiting the needs assessment when it becomes obvious that something, or a bunch of somethings, have been overlooked.
What constitutes a full spectrum needs assessment? well – it includes scenario thinking after all key players have been interviewed (current business processes, what is not working, what is taking them away from their real work, what they would like to see in place to help them get their tasks done with integrity, completeness and quality)… Time and time again many company executives will want to move forward without a firm foundation in place – and wonder why later down the project is becoming costly, not so timely and a thorn in their sides… We have lived that scenario…