Competitive Behavior and Game Theory

I recently read an article in this month’s Scientific American magazine that seemed to touch upon some aspects of the issues that Dr. Sliver discusses in the into to his book. Specifically Dr. Silver made some analogies between the corruption in sports cheating (using hormones, etc) and business ethics. The article also touched up the sports problems and discussed them in the framework of game theory and why people do the things they do. Game theory mathematically analyzes the behavior in the interactions between two or more people (or companies). It’s a very important theory in many fields, especially economics.

It’s not possible here to go into a detailed breakdown of game theory and how it might applied to competitive behavior between companies, consumers, and the government (nor am I qualified to do this). Suffice it to say that the concept of escalating competitive behavior between two or more parties is almost a fact of nature rather than something special to the business environment. The dilemmas and types of choices made here are equivalent to choices made in many competitive situations. In my opinion it shouldn’t should it be surprising that companies would ramp up their competitive behavior. Hire a lobbyist? Who wouldn’t in order to get an advantage? Hire 10 more? Again – who wouldn’t? Why is this surprising? It’s the same reason why the US and Russia had 10’s of thousands of nuclear warheads aimed at each other.

The only conclusion that the author of the SciAm article came to was to install very harsh penalties in order to influence people’s behavior in regards to illegal drug use. One confirmed use of a steroid is grounds for dismissal from the sport – forever. And penalize his or her team harshly too. However installing these types of regulations for US companies is a political non-starter and moreover it’s probably not wise given the nature of the global economy. With these thoughts in mind it seems like we will always live with some kind of environment where competition and ethical behavior are always in discussion. It’s a fact of nature.