Game Theory

This article was inspired by Mick Napiers book Improvise: scene from the inside out in which he draws comparisons between Physics and Improvisation. It made me think I know a little bit about game theory (I majored in it) and it has the word game in it, so chances are itll have something in common with improvising, which is really nothing else but playing games. And, not so surprisingly, there are some rather powerful parallels:

To make everybody look good, you have to have cooperation. You have probably heard of the prisoners dilemma. It is about two suspects, who are separated and each asked to confess. If one confesses and the other denies, the first gets off easy, the other gets 10 years. Being a snitch pays off. If both confess they each get 5 years. If both deny just 1. So, obviously the best solution is for both to deny. But if this expected, they will deviate and confess. Actually, it is always better to confess! So if there are no other means of cooperation then both will confess and get 5 years, which is far from the best outcome where both get 1 year. This debunks effectively the notion that individual selfishness maximizes common welfare!

The challenge here compares well with going for the funny (i.e. selfish behavior) in an improvised scene. If you do youll get a laugh, sure. But if you both start going for the jokes you will look very silly. So, resist that urge and always play from the top of your intelligence. It's worth the effort.

One of the most important things in improvisation is to be completely aware of everything going on in the scene. To be affected by it and not script ahead in your mind just to end up saying that stupid disconnected line that you thought would be so funny. In Game Theory too, this is an important rule. A strategy must be a best answer to the other players move. You must consider explicitly the reaction of the other players when you make your decision. Take the winners curse for example. You want to acquire a company that is worth somewhere between 0 and 100 dollars. Once you acquire the company it will be worth 1.5x that amount because of your better management. But heres the catch: only the seller knows what the actual worth is. So, what do you offer him? Take a second to think about your answer. Did you say 50 dollars? Because that is the expected value of the firm? Youre in good company. But you were wrong. The correct answer is 0. Why 0? Well, lets say you offered $50 and the other party accepts. They will have only accepted your offer if the actual value is between 0 and 50 dollars, right? That means an expected value of $25. For you that is worth 1.5 times as much, or $37.5. The deal doesnt sound so good anymore? The same applies for every other amount offered. What you had to do to find this solution was simple enough: Put yourself in the other guys shoes and think about your best answer to what she might do. Sound familiar?

According to subgame perfectness you are not allowed to make unbelievable threats like If you enter my market I will fight even though it costs me a lot of money, if this is not in your best interest once the event occurs. The way around this issue is to invest in sunk cost. E.g. financial constructs, advertising, or your reputation that make it clear it will cost you dearly if you do not live up to your word. I.e. make it so expensive to bail that the threat once again becomes credible. In improvisation too you cannot bail on your offers. If you stuttered at the top of the scene, keep on stuttering. It's your contract with the audience. Yet, it is sometimes tempting to do so. Or, often you let go of it out of plain carelessness. So, invest highly at the top of the scene so it becomes impossible to go back.

Trembling hand perfectness Means you must have an answer even to the most irrational moves. What if you find yourself in a world that cannot exist (an unreached information set)? E.g. your competitor makes an incredibly stupid mistake. And sells PCs direct to consumer, no intermediaries. Although you know so well how important service is to your customers. What if this happens? How do you react? Basically, game theory says you have to have an answer for these situations too. The parallel to Improv? It's almost too obvious isn't it: you always have to have an answer. Nothing should throw you off balance. There's a horse in your kitchen? Right where you're baking that cake? Fine, work with that. Pet the horse, ride it over to the sink, milk it. Do whatever comes naturally to your character. React sincerely to it and you will be rewarded with interesting scenes. This one touches the very heart of improvisation as well as so many other business or private challenges: Take everything as a gift and be enough of a person to accept it. Then add to it. Yes And!