Game theory in business and politics

This week on Professionals of the Inland Empire (PIE) podcast, Jay Prag, clinical professor of economics at the Drucker School of Management in Claremont, joins John Tulac to discuss game theory and how it relates to business.

Prag, in addition to his long-time career as a professor, has authored several books. His most recent work is Useful Game Theory: Fundamentals of Decision Making co-authored with his wife, Amanda. The book applies the principles of game theory to everyday decision-making, using relatable examples, proverbs, and minimal mathematics to make the concepts accessible.

Prag shares familiar sayings from grandmothers to illustrate game theory concepts. The phrase “Cheaters Never Prosper” implies that while a person might gain temporary benefits from cheating, they will ultimately lose trust and critical relationships essential for long-term success. For instance, a child who cheats may achieve a short-term gain, but their behavior will eventually result in isolation or loss of connections.

In a business context, this phrase applies to concepts like “Slash and Burn Agriculture,” where immediate returns come at the cost of depleting future resources. Similarly, businesses that treat vendors poorly will eventually find fewer willing partners, highlighting the long-term detriment of unethical practices.

Jay further illustrates this through a mediation exercise, structured like a poker game, which demonstrates how exploiting others can incite outrage and resentment within collaborative situations.

The Prisoner’s Dilemma, a famous game theory problem, vividly illustrates the tension between cooperation and self-interest. Prag suggests that encouraging cooperation generally fosters better outcomes for both individuals and society. Jay connects this concept to the Golden Rule, advocating for treating others as one wish to be treated. This principle underlies societal norms where collaboration, particularly in environments with repeated interactions, strengthens trust and community bonds and ultimately leads to broader success. 

Prag also draws parallels between game theory and current political issues, using California’s gerrymandering and redistricting as an example. Historically, redistricting methods evolved from partisan manipulation, leading to the public introduction of independent commissions intended to ensure fair practice. However, contemporary challenges persist, as concerns remain about partisanship influencing current models, despite the public’s preference for balanced districting.

A lack of cooperation and ethical decision-making in politics can escalate conflicts, resulting in unproductive outcomes, embodying the “two wrongs don’t make a right” concept. Therefore, political leaders are urged to model good behavior, as their decisions have far-reaching effects on governance, community trust, and citizen engagement.

The PIE podcast aims to showcase Inland Empire professional talent, foster local economic development, and highlight the Provisors networking community. Catch the full show on YouTube @ProfessionalsofInlandEmpire.