Playing For Keeps

From an early age we learn to play and cooperate in groups. The practice stays with us into the workplace. Along with the group play comes the competitive play between groups. That competition can become severe and be to the detriment of a company if the employees are siloed into strongly competing groups. The apparent cure is to be inclusive, but does this really work?

Here we move into the realm of game theory and Public Good Games, PGG. This type of game has groups of people with individual budgets and they can choose to put some money into their group(s) pot or not. That is they are a cooperator or a defector. A multiplier is then announced for the round and the pot is split evenly among the group members. An individual’s resources increase most if he/she freeloads and lets other people risk their investment. Investments are anonymous, of course. It would be impolite to look at what your neighbor is doing with his/her cash, wouldn’t it?

Inclusiveness in these groups is not a very good idea as the freeloaders will gradually encourage everyone to freeload so, after a few rounds, no one is investing in the group. Carrots or sticks can be introduced to make people more cooperative but still the big banner of inclusiveness is flying high. We know that the philosophy is politically correct but is it financially and fiducially wise? Clearly not.

Smaldino and Lubell of UCal Davis have set the game up with a variation of a capacity constraint on top of the normal budget constraint. This allows players to join a table if there is a vacant seat and they can join more than one group. The big constraint is that each player’s investment decision is the same for each table that he/she is claiming a seat at for any particular round. Hedge fund managers would clearly not be welcome as they would clearly want to bet more cash on winners and against losers. Also players can leave a table and join a different one if a seat is available so the network is dynamic and can evolve.

The result, which I find extremely interesting, is that the evolution went to eliminating freeloading and encouraging cooperation. So putting the capacity or size limitation on the group leads towards the evolution of high performing groups with less freeloading than with a fully inclusive model. A somewhat scary thought when we turn our thoughts to the democratic process.

Leave a Reply