Not Just a Game Theory

Assistant Professor of Global Economics and Management M. Kathleen Ngangoué is interested in the interaction between markets and bounded rationality or non-standard preferences. Her most recent work analyzes why people make different decisions when uncertainty is defined over different objects. In her first-year teaching at UCLA Anderson, Ngangoué has developed a new course titled Information and Strategies in Markets. Her students learn how to employ game theory as a means of simplifying complex situations, while blending in tools from behavior economics and information economics.

Q: How would you describe your Information and Strategies in Markets course?

It’s a blend of three different topics. The students learn to understand how they can represent complex situations in a very simplified structure by using tools from game theory. We also use tools from behavioral economics and information economics.

We focus on situations where there are interactions with multiple parties. Imagine two nations negotiating a climate agreement or sitting down at the brink of a war, or imagine two different entities engaging in competitive pricing. These examples involve multiple parties’ interaction with each other, and with each party’s pursuing its own interests.

We call these analogies games, and each party wants to reach the best possible outcome. If two nations are negotiating a climate agreement, each might seek the best possible outcome for its future. If it’s between two companies, each might want to maximize its profits, but they may have to share the market to do so in the long run.

We use game theory to represent these complex situations with a very simplified structure. We have to understand the parties involved and the interests they are pursuing. Do they have aligned interests, or do they have interests that are completely misaligned? Because that makes the game more complex. On top of that, we also have to understand the layers of complexity that become relevant in the real world.

Given these difficulties, we then have to think about how to obtain specific outcomes. We might have to change the rules of the game or we can change the game entirely in order to reach a desired outcome. Ideally, at the end, I would like my students to be able to choose the game that they would like to play in real life.

Q: “Game theory” is a term that gets tossed around in reference to things like competitive poker. Do you expect the students in this class to have a prior knowledge of what game theory is, or do you begin by teaching them what they need to know?

That’s a good question. In my experience, the students do have that preconception of game theory so we start from the very beginning. We start by discussing what a game is. The beauty of game theory is that it can be applied to so many settings because, as I said before, as soon as you have an interaction among multiple parties, we call it a game. That applies to a poker game, but that also applies to any interaction between two different parties.

Many students were really surprised at the end of the course that they could take the same game structure and apply exactly the same game-theoretic analysis to political agreements between nations as they could to negotiations between parents and children. Game theory just gives you the tools. These tools have a very broad scope in the real world.

Q: What was it like pulling the class together for the first time?

Before joining UCLA Anderson, I taught econometrics and statistics. Although I loved teaching these highly quantitative classes, teaching this new elective was completely different. This course is more tangible to the students because it is relevant to many domains in real life, which allows students to engage more and share their own experience and perspective on a game’s analysis. In this course all participants can learn from each other — the students [are] like the instructor. I am delighted that UCLA Anderson provided me the opportunity to design a class that would really spark my enthusiasm and interest.

I thought about this class because, for my own research agenda, I’m interested in understanding information processing at the decision-making level and also in interactive situations, meaning in games. For instance, in recent research my co-author and I found that, in auctions, bidders stop overbidding when uncertainty is defined over probabilities rather than over values. This is because their ability to reason strategically differs when they reflect about probabilities. Similar differences are observed when people reflect about time: How they prefer to resolve uncertainty over time depends on what is uncertain. That is, people react very differently to various objects of uncertainties, even if they shouldn’t.

I’m an experimentalist, I conduct experiments in the lab to have a better understanding of these topics. So, that was my personal motivation to go in this direction and to really see how I could organize a class on this subject.

Q: How do you think MBA students in your class will apply the lessons?

I really felt such a class would be of interest to the future entrepreneurs at Anderson. They would come away with a better understanding of how information is affecting everyday interactions, but also understand better how they can make money out of information.

We are in the age of information, we’re surrounded by information, we’re even overloaded with information, and that is tightly related to the attention economy. We have to manage our scarce resources of attention to make the best possible decisions. I think this subject is relevant to everybody.

Q: What did you learn from the first time teaching the course that will help it evolve?

I probably overestimated the amount of material I could cover. Also, in that first class, I learned a lot from the students because they came in with their own experiences in industry. I now have a better understanding of specific problems in their industries because they would tell me, “Look, this is a problem that I’m facing in my industry and it seems to me like a game theory problem. How can we approach this problem from a different perspective, from a more stylized, game theoretic approach?”

So we’d sit together and think about best possible games that we could apply to their specific industry. They had the expertise. They knew what was important in that respective industry. I have more of a game theoretic expertise, and together we learned a lot more. That was a beautiful experience for me. Looking forward, I will try to include in my future classes some of the insights that I have gained from my first students.

Q: How does this course differ from, say, a course on negotiation?

Well, to some extent there might be some overlaps.

But I think it’s a little bit different from a negotiation class, because negotiations refer to a specific set of actions. Here we are considering a broader context in which you can have a game even without any communication, right? Or without one party’s really having the ability to react to a specific event. The tools this course provides to students have a somewhat broader context, whereas negotiation would be one aspect of it.

Q: What are the course requirements?

This class has no final. Instead, it has two major assignments, one of which has to be submitted individually, the other of which can be done in teams.

Then we also have a class participation component that is important. I put a lot of emphasis on participation, but I take into account that the students are very heterogeneous in their personalities. Some of them need to think aloud in order to have the best experience. Others need first to think problems through on their own before they can share their insights with the class. I want to respect that. This is why I’m providing students with different ways of getting participation credit, one of which would be sharing insights in group discussions or in class exercises. Another way is sharing the solutions to many quizzes or mini assignments I provide, or by conducting experiments in the classroom with their fellow students.

Q: Last question — and maybe you’ll think it’s kind of funny. It seems like by teaching game theory, you’re giving people a superpower that they need to know how not to use for nefarious purposes. In other words, maybe you don’t necessarily want people to go through life treating every interaction like a game with the goal of coming out ahead. Do you have any thoughts on that?

My answer to that really depends on your objective. If your objective is to win every single game, then you can put a lot of effort into choosing the best game and the best rewards and your best possible interaction. But if your objective is some kind of a long-term objective where you minimize conflict, then you might want to choose a different game. It really depends on your own objectives, and that’s the very first thing that you have to be clear on.

But even if one has nefarious intentions, one should keep in mind that the other parties involved have their own interests as well, and that the game’s outcome is a result of complex interactions. This course is not a guide to being manipulative. But being aware of when there is scope for manipulation from either side can never hurt.