Many real-world decisions are not made in isolation, they involve consideration of the goals and plans of other people and those goals and plans aren’t necessarily aligned with our own.
Real-world decisions are not made in isolation
So far I talked primarily about individuals who make decisions in isolation: a consumer deciding between cars the purchase, a gambler deciding whether to make one more bit, a near retiree deciding whether to move their investments from stocks to bonds.
But, many real-world decisions are not made in isolation, they involve consideration of the goals and plans of other people and those goals and plans aren’t necessarily aligned with our own.
In today’s article I’ll talk about how the decision process changes when there’s another person involved, when we coordinate our decisions with someone else for mutual benefit or when we compete with someone else over a limited resource. Such social decisions can involve a rather counterintuitive process of decision-making.
How to deal with competing priorities
Let me give you an example, one you may have experienced before. Suppose that you are arranging dinner plans with a friend who lives on the other side of town. The highest priority is to meet at a restaurant that you both like in both you and your friend share that goal.
But, you’d prefer a particular restaurant on your own side of town to minimize your travel time and your friend prefers a restaurant on her side of town for the same reason. So each of you has a different competing goal for the location of dinner. How could you resolve that competition?
Your first thought naturally is to call your friend and to discuss the location of dinner. Maybe you can talk her into coming to your side of town. So you call her and there’s no answer, you soon get a short email message from her it says “hi my phones out of charge and I’m going off-line a mutual the restaurant down the street from my house at 7 o’clock, bye!
Influences of social norms on decision-making
With that simple message she ensures that you go where she wants. This seems like a trivial example: it just involves two friends deciding on the location for dinner, but think about how it was solved. In a sense your friend won the negotiation by purposefully limiting her ability to make decisions.
As we’ll discuss later in this article that simple idea turns out to have extraordinary implications for how people institutions and governments interact. So today, I’ll transition from a focus on decisions made by individuals in isolation to decisions made by individuals in social settings, specifically settings in which two people or a small group of people interact.
We’ll consider larger groups how people interact in societies and the influences of social norms on decision-making in the next few articles. Economists and other social scientists have used a branch of mathematics called game theory to model interactions during strategic decision-making. But, what do they mean by a game? it’s basically an abstracted version of the decision situation.
Game is something that specifies the decision-makers or players and their potential choices in the outcomes of their choices. So let’s take a real world situation and reduce it to a game, specifically a game in which people’s goals are competing. During the early days of the National Hockey League and up till the 1970s players never wore helmets.
Now that wasn’t because the players thought helmets were useless. On the contrary many of them had experience concussions from hard hits or had lost teeth the flying pucks and they all knew of other players who had suffered injuries from hockey sticks to the head. So why didn’t they wear helmets? The simple answer was because other players weren’t wearing them.
If one player wore a helmet he’d be safer, but he wouldn’t see or hear as well as the other players so he be playing at a disadvantage. A player who wore a helmet might lose his spot on the team to someone else who didn’t wear a helmet. Let’s simplify the situation to something we can model using game theory.
A trade-off between different interests
There are two similarly talented players competing for a spot on the same hockey team. They each have two potential choices: wear a helmet or don’t wear a helmet and their outcomes depend not just on their own choice but also on the choice of the other players
game theorists use numbers to represent the desirability of each outcome. In game theory this is called the relative utility of the outcome.
For this example I’ll just use arbitrary numbers from 0 to 10, with larger numbers indicating better outcomes – that is outcomes higher relative utility. Suppose that both players show up for training wearing helmets, they each have equal chances of making the team and they are better protected from injury.
So, that outcome seems pretty good for both of them, let’s call it a seven. Now suppose that one of those players decides to play without his helmet, his odds of making the team now go up considerably even though he’s risking head injury. He thinks that the trade-off toward making so let’s call it, a nine. But, the other players still wearing his helmet so he’s very unlikely to make the team.
The worst collective outcome
That’s the worst outcome even though his head is protected. So let’s call that out, a one. What might happen next? the following day both players show up without helmets. They’re back to a fair competition although neither’s head is protected and both are risking injury. Let’s call that outcome of three.
Let’s think about the situation. Clearly the players are better off when both wear helmets than when neither wears a helmet. In both cases the competition is fair, but the injury risk is much higher when not wearing a helmet, but they end up without helmets in the worst collective outcome. This simple situation turns out to be equivalent to the most famous scenario in all of game theory: the prisoners dilemma.