Barry Nalebuff on Punishments, Relationships and Game Theory | Big Think

Barry Nalebuff on Punishments, Relationships and Game Theory

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Yale’s Barry Nalebuff discusses game theory’s myriad applications.

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Barry Nalebuff:

Barry Nalebuff is the Milton Steinbach Professor of Management at the Yale School of Management. Professor Nalebuff has written on a wide variety of subjects ranging from strategy to pricing, bidding to bargaining, and innovation to incentives. He is an expert on game theory and has written extensively on its application for managers. His most recent book, The Art of Strategy, is an update of the best-selling Thinking Strategically, which explains the fundamentals of game theory using real world examples.

Professor Nalebuff's work on strategy focuses on the fundamental duality in business—the conflict between cooperating to create a pie and competing to divide it up—which he presents in Co-opetition. His book, Why Not?, focuses on providing a framework for problem solving and ingenuity. His work on product bundling was featured in the European Union's investigation of the proposed GE-Honeywell merger.

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TRANSCRIPT:

Question: Can game theory be applied daily human interactions?

Barry Nalebuff: One challenge for people is figuring out, is this relationship going anywhere? And I think the following example will nicely illustrate the strategic thinking that goes into this.

So my friend was dating this fellow who had gotten divorced, and they are living together, they were in love, they were happy. And he kept on saying that they get married, but it had been kind of a while. Could they buy a house together? Could they live in together?

They had a daughter from the previous marriage and she wasn’t really quite ready to see dad make the step. And the question was, how could she feel comfortable that they were really going to go somewhere and yet somehow not make this public? And what she came up with was the following idea that he needs to get a tattoo. It could be a discreet tattoo with her name. And if he was willing to do that, she was willing to stay with him.

And when he wasn’t, she realized that he was, I guess, the classic Peter Pan in this regard. And this illustrates the point of signaling. Signaling is taking an action which is really convincing other people, and perhaps yourself, that what you are saying is true.

So getting a tattoo is, relatively speaking, inexpensive, if you are planning to spend the rest of your life with this person. But it isn’t so inexpensive if you have other plans.

And we are always trying to go and send credible signals to other people because talk is cheap.

Another example; my own sort of theory; it’s important. Why do many women go to business school? It’s pretty expensive. It takes two years of your life. But many employers are worried that women are going to leave the career to go and have children, start a family.

And you ask the person you interview -- well, one that might be illegal to ask them -- but even if you did, they are all the same, "No, no, I’m here for the career."

On the other hand, if the person says, "I just spent $70,000 in tuition, two years of my life getting this training. I wouldn’t have done that unless I was intending to pay it back. And so the fact that I went and did this activity should be great evidence to you that I am serious about my career."

Other people will say it, I’ve taken an action which is really of that category and then the little one and this is the Hermes tie, right? I mean, why spend/waste so much money on this tie? Well because I’m going to be the person who ultimately has the job that means I’ll be wearing this thing, and it was actually going to pay it back.

Somebody else can say, oh, they are going to have this, but I’ve already proven that it’s worth my while to do this.

Question: How can game theory be applied to relationships?

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