For leaders and aspiring leaders in any field, I highly recommend a new article by Richard O. Lempert, an emeritus professor at the University of Michigan Law School. In it, he uses game theory to analyze the strategic choices available to President Obama and Senate Republicans as they battle over how the post-Scalia vacancy on the Supreme Court will be filled. It’s fascinating in itself, and it’s a reminder of how particularly valuable the discipline of game theory can be to any leader.
For example, here is Lempert’s dissection of one of Obama’s options, nominating a “responsible moderate” such as Merrick Garland, Chief Judge of the D.C. Circuit, a Clinton appointee:
And this is only the beginning, Lempert discusses other factors in the “moderate” option and examines the likely dynamics of other options the president might consider.
Many leaders probably feel they use game theory all the time, even if they’ve never been schooled in it, and that is undoubtedly true. Anticipating someone’s response to our move, and then how we might respond, and what they might do next, etc., is in the very nature of human interaction. But game theory is a rich field that has been developed far beyond what most of us would imagine; many economists have won the Nobel Prize at least in part for contributions to game theory, most notably John F. Nash Jr., who won in 1994.
I can’t resist mentioning the role of two former Fortune writers in making the world more aware of game theory. Sylvia Nasar wrote A Beautiful Mind, the bestselling biography of Nash that was made into an Oscar-winning movie. And John McDonald first explained game theory to the world in a series of landmark articles in the 1950s. From that work he produced a classic little book called Strategy in Poker, Business, and War. It’s still in print, and I recommend it, along with Sylvia’s wonderful book, to anyone who hasn’t read them.
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What We're Reading Today
Apple will fight unlocking iPhone for authorities
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Mechanics reject United Airlines offer…
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Iran has no plans to limit oil supply
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U.S., Cuba sign deal to reopen air travel
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New Fed head of Minneapolis: Break up the banks
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China deploys missiles in South China Sea
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“We know markets make mistakes; that is unavoidable in an innovative economy. But these mistakes cannot be allowed to endanger the rest of the country. When roughly 1,000 savings and loans failed in the late 1980s, there was no risk of an economic collapse. When the technology bubble burst in 2000, it was very painful for Silicon Valley and for technology investors, but it did not represent a systemic risk to our economy. Large banks must similarly be able to make mistakes—even very big mistakes—without requiring taxpayer bailouts and without triggering widespread economic damage. That must be our goal.” —Neel Kashkari, President of the Federal Reserve Bank of Minneapolis, speaking about breaking up banks. Federal Reserve Bank of Minneapolis
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