How can game theory help you optimize process design negotiations?

2 Choose the right game

Not all negotiations are the same. Some are cooperative, where the parties can benefit from working together and creating value. Some are competitive, where the parties have conflicting interests and seek to maximize their own gains. Some are mixed, where there are elements of both cooperation and competition. Game theory can help you choose the right game for your process design negotiation, and adapt your tactics accordingly. For example, you can use a prisoner's dilemma game to illustrate the benefits of cooperation over defection, or a chicken game to show the risks of escalation and brinkmanship.

3 Change the game

Sometimes, the game you are playing is not favorable for your process design goals. You may face a stalemate, a deadlock, or a lose-lose situation. In that case, you can use game theory to change the game, and create new opportunities for agreement. You can do this by introducing new players, new options, new information, or new incentives. For example, you can use a mediator, a third-party expert, or a customer representative to facilitate the negotiation, or you can propose a contingent contract, a trial period, or a bonus scheme to align the interests of the parties.

4 Play the game

Once you have understood, chosen, and changed the game, you are ready to play it. Game theory can help you execute your process design negotiation with skill and confidence. You can use game theory to plan your moves, communicate your signals, respond to your counterparts, and evaluate your outcomes. For example, you can use a tit-for-tat strategy to reciprocate the actions of your counterparts, or a Schelling point to converge on a focal solution. You can also use game theory to avoid common pitfalls, such as irrationality, overconfidence, or deception.

5 Learn from the game

After you have played the game, you can use game theory to learn from the game, and improve your process design negotiation skills. You can use game theory to review your performance, analyze your results, and identify your strengths and weaknesses. You can also use game theory to feedback your learning, share your insights, and apply your lessons to future negotiations. For example, you can use a Nash equilibrium to assess the efficiency and fairness of your agreement, or a Pareto frontier to explore the potential for improvement.

Game theory is a powerful tool for process design negotiations, as it can help you understand, choose, change, play, and learn from the game. By applying game theory principles and techniques, you can optimize your process design outcomes and relationships, and create value for yourself and others.

6 Here’s what else to consider

This is a space to share examples, stories, or insights that don’t fit into any of the previous sections. What else would you like to add?