The Prisoners’ Dilemma

 Picture this. Two accomplices are arrested and put into two different interrogation rooms. The skilled interrogators play each prisoner against the other, variously dangling a carrot or brandishing a stick to each in turn. Now, most likely the prisoners have a pact, which they decided on before committing their illegal act, that once arrested they should stick together no matter what. But, as the interrogation drags on, doubts in each prisoner’s mind emerges as to whether her or his accomplice will maintain the pact. Each starts to wonder, should I cooperate with the police because my accomplice is likely to rat me out anyway, or should I resist and stick with the pact because my accomplice will do the exact same thing? In game theory, this dilemma is known as The Prisoners’ Dilemma.

 

Political organisations that are dominated by factions face a similar dilemma. Each faction wonders, should we rat the other faction out to the members and the electorate, or is it in our factional and collective interest to maintain unity at all costs because we believe that is what the other factions will do too? In some instances, factions will initially choose the latter, but over time ‘self-interest’ takes over and they ‘rat’ the other faction/s out.

 

You saw this in the UK Labour Party during the movement that swept Jeremy Corbyn to power, and in both parties during the whole Brexit scenario. You saw it in the US GOP with the Tea Party and the Trump sweep to power, and you see it now within the GOP between Pro Trumpers and Never Trumpers, and within the Democratic Party between the so-called progressives led by “The Squad” and the so-called moderates. You saw it in South Africa several times within ANC factional battles, and you see it now with the goings-on at the State Capture Commission and the factional fight-to-the-death.

Game Theory and Strategy

Strategy is about competition, and, ideally, cannot and should not, be cast in stone. Static strategy is suboptimal. While it should be concrete enough and clear enough for all to follow, it should, however, be dynamic and capable of evolution and change over a given time horizon. Strategy set ex-ante mostly becomes more or less obsolete once the rubber hits the road, once additional market information becomes available, once other players, be they competitors or other ‘neutral’ players like customers, regulators, take their respective actions in response. In such circumstances, it would be foolhardy, even potentially suicidal, to hang on to what was decided at the strategy session or board, without making appropriate changes to respond timely and appropriately.

 

While it is true that in developing strategy, a market and competitor analysis is undertaken, this tends to be static or backward looking. And yet, strategy is a game-plan for the future.

 

Game theory modelling, while mathematically perhaps too robust for everyday application, is however very pertinent for strategy modelling. Clearly, it is important to understand the game you’re playing so that you choose the appropriate form of the game. Once chosen, the model can guide you throughout the interactions as your strategy unfolds. 

 

Take, for instance, a duopoly. You can think here of Coke versus Pepsi. Or iOS versus Android. In geopolitics, during the cold-war, it was the US versus the USSR, but now it has morphed into the US versus China, and so on.

 

In practice, neither of these can have, or should have, a strategy that is static. Yes, there is an overall goal: dominance. But each can only use past knowledge to model or anticipate or create scenarios based on the other’s reaction to their own moves. Player-1 wouldn’t know beforehand what Player-2’s reaction would be to Player-1’s move, neither would Player-2 know Player-1’s move beforehand, and how Player-1 would react to Player-2’s move in reaction to Player-1’s initial move, and so on. Neither side would also know the severity or extent or impact of the move each makes (No move is also a move). Moreover, they would not know the reactions of ‘third parties’ like regulators or consumers, which would impact or have to be factored into subsequent moves. 

 

What they have to work with are scenarios or sequences, and their likely payoffs. Some situations may have finite scenarios/sequences, while others may have an infinite number of scenarios/sequences, and in order to simplify and be able to make a move, they may have to narrow down to a few scenarios/sequences. All this sounds philosophical and convoluted, but it can be modelled. But the modelling presupposes flexibility. A calculation of the payoffs of each action and reaction, without knowing what the competition will do, and a preparedness to adapt and change to circumstances as they unfold. 

 

So, a once-off annual strategy session, largely based on your own decisions, without factoring in what the competition may do, and then putting it on the shelf won’t cut it. Besides the all-too-well-known failure to execute strategies, a failure to model appropriately may also be a factor in not implementing strategies: they are generally not implementable.

 

What colour is the dress?

 What colour is the dress? Not long ago, there was a viral Internet sensation about a dress. Depending on your brain’s wiring, you either saw it as one colour or another. It was similar to the twirling figurine, you either saw it going clockwise or anticlockwise!

 

Which do you see, downside risk or opportunity? It appears that, in a given situation, depending on your wiring, you either see downside risk or opportunity.

 

In any situation, particularly in business, we know that risk and return are intertwined. The risk arises out of the fact that in any risky asset, the expected returns are likely to be different from the actual returns, upwards or downwards. I am, however, concerned here with the likely downside risk. The higher the downside risk, the higher the expected or demanded return, and vice versa.

 

So, which strategy should you pursue? Drive down downside risk or seek a higher return? There are dangers lurking in both directions. Seeking to lower downside risk close to zero may result in missing opportunities with the highest returns, while on the other hand seeking ever higher returns may lead to reckless investing. Remember also that risk does not imply certainty, it comes with a probability of occurrence, while expected (risky) returns are also not always guaranteed.

 

Strictly speaking, of course, it bears mentioning that risk in general, downside or upside, is also dependent on your vantage point. For example, looking at a firm, are you an investor or a manager? It bears mentioning, as well, that if you seek to lower your downside risk to zero, then you don’t go to Mars, neither do you build a Tesla or an iPhone, as they are all very risky ventures! 

The Law of Unintended Consequences

 The law of unintended consequences is an important concept in policy-making and implementation, and in project development and evaluation. Put simply, the law relates to the unintended results of a decision or action emanating from a policy or project. For example, building a badly needed highway, only to discover later that it bisects a wildlife migration trail or a grazing path for livestock. Of course, these are simple examples that project planners usually take into account, but they do illustrate the point.

 

The concept of unintended consequences illuminates the perverse unanticipated effects of legislation and regulation. In 1692, the English philosopher and economist John Locke urged the defeat of a parliamentary bill designed to cut the permissible rate of interest from 6 percent to 4 percent. Locke argued that instead of benefitting borrowers, as intended, it would actually hurt them. People would find ways to circumvent the law, with the costs of circumvention borne by borrowers. To the extent the law was obeyed, Locke concluded, the chief results would be less available credit and a redistribution of income away from “widows, orphans and all those who have their estates in money.”

 

The first and most complete analysis of the concept of unintended consequences was done by the American sociologist Robert K. Merton in 1936. In an influential article titled “The Unanticipated Consequences of Purposive Social Action,” Merton identified five sources of unanticipated consequences. The first two, and the most pervasive, were ignorance and error. Third, “imperious immediacy of interest,” meaning that the desire for the intended consequence is so great that the potential unintended consequences are purposefully ignored. Fourth, “Basic values”, and fifth, “self-defeating prediction,” meaning the instance where the public prediction of a social development proves false precisely because the prediction changes the course of history. This is the flipside of the idea of the “self-fulfilling prophecy.”

 

The law of unintended consequences provides the basis for many criticisms of government programmes. Unintended consequences can add so much to the costs of some programmes that they make the programmes unwise even if they achieve their stated goals. And the costs needn’t be financial exclusively. At the very least, policy makers and implementers should have reason to pause before ploughing ahead with their programmes.

 

I was reminded of this concept a few days ago on reading a couple of articles appearing in the Business Day newspaper dated Tuesday, 30 March 2021. The first article, “Report shows how to get country’s infrastructure delivery going,” contained a very illuminating comment. The sentence in question, “Probes of anticompetitive behaviour in those boom years and the resultant fines weakened many of the largest construction giants…” caught my attention because I was in the thick of it in those days post the FIFA World Cup construction boom. Although I wasn’t an accused personally, the very successful company I was working for was, and a number of my colleagues became sacrificial lambs as they were either demoted or forced into early retirement. Rigorous and sustained competition law training followed, and constant nervousness and diffidence lengthened marketing and sales cycles. Once great companies, and the groups to which they belonged, started on downward spirals, resulting in job losses and loss of engineering capacity for the country. While I am generally supportive of anti-competitive legislation, it’s undeniable that perhaps in this case, where I have first knowledge, the unintended consequences were disastrous.

 

The second article, “Power ships a worse nightmare for SA than stalling planes,” relates to a plan to park four power ships off the coast of South Africa to provide much needed backup because of the constant load-shedding being experienced by citizens and industry. This is clearly a drastic development, one that is very embarrassing and distressing. The constant management and board shakeups that Eskom has undergone, ostensibly with the aim to rid the state-owned company of corruption, have clearly had a very big unintended consequence. While the jury is still out on the intended aim to rid the company of corruption (after all, a number of subsequent CEO’s and Chairman have had to be subsequently got rid of for similar reasons), it is undeniable that while for some time there was a respite from load-shedding, it has returned with a vengeance, and the alleged twenty-year contracts for the power ships don’t bode well for any immediate end to load-shedding. I am not here defending past CEO’s or boards, merely pointing out analytically the unintended results of the decisions to remove them.

Butterfly wings

Each of us has an ability to influence things, whether it be in a small way around us, or in a big way that affects the course of history. We all get small moments where our decisions and actions may matter. If we choose to act, change happens. However, frequently, we choose not to, whether out of deference or simple inertia. 

 

I recently had a discussion with a good friend on just this issue. Although we were both broadly in agreement, he, however, said that his process is to evaluate first whether or not his intervention will have an impact. If he feels it won’t, then he does nothing. I guess you can see the flaw in this? Often, we don’t really know if our actions will have an impact. You only see after the fact whether or not change did happen. Inaction, therefore, sounds like a cop-out.

 

John Maxwell, the leadership expert, has made the point that leadership is not about titles, that often in organisations the leader is not really the person with the title. You have to look elsewhere to discern who the leader is. This is the same about impact. It’s not always, even not necessarily, the titled big people who end up having the big impact. Take the case of Greta Thunberg, for instance. Or Malala Yousafzai. Just kids, but their impact reverberated around the world.

 

Just like the proverbial wings of the butterfly, your small actions can start a storm. 

CJ Mogoeng and his foot-in-mouth moments

 It can’t be argued that we didn’t know what we were getting when President Zuma decided to appoint Mogoeng as the CJ of South Africa. Mogoeng was apparently already well-known among the judiciary for his strong religious beliefs, and he certainly didn’t hide his position during his public interview.

 

I have, in fact, been a supporter of the CJ since he was appointed. He is, however, off the mark on Israel, and his pronouncements on the COVID vaccine were bizarre, to say the list. 

 

While I have no quarrel with his strong religious beliefs, after all, as he himself asserts, this is guaranteed in the best constitution in the world, I have a problem with his naïveté. On the one hand, he allows himself to be used by the Israeli lobby, while on the other he espouses cultish beliefs. This wouldn’t matter much from an ordinary person or a minor leader, but to be coming from the CJ of the country, especially while acting in his official capacity, is problematic.

 

Although he has opted to challenge the sanction of the JCC on his Israel pronouncements, he would do himself a great deal of good if he simply apologised and moved on.

Mthokozisi Ntumba: Stop arming police during peaceful civil protests!

Numerous times police actions during civil protests have resulted in deaths or serious injuries on the part of protesting citizens and bystanders. Surely, enough is enough?!

A number of points need to be made in addressing this issue.

First, our police are clearly sadly untransformed, despite having Black leadership. Black leadership seemingly will never guarantee transformation, as long as the police tactics, methodologies and tools are the same as they were under Apartheid.

Second, clearly our police don’t have a clue about dealing with peaceful civil demonstrations. Under Apartheid, the then government and their police force didn’t care for Black demonstrators, because for them they were the ‘enemy’ (as wrong as that thinking was). Using armed force, therefore, seemed ‘justified’, and in any case they didn’t care about the loss of Black lives or well-being. Human rights were non-existent.

In a democracy, however, that dichotomy doesn’t and shouldn’t exist. Moreover, the role of the police is not just to protect property, but more importantly to protect the lives and well-being of citizens, both the protesters and non-protesters. Participating in a protest doesn’t suddenly remove or reduce one’s constitutional rights; in fact, the very act of peaceful protest is protected by the constitution. 

However, coming armed to a protest clearly belies this. It appears that our police view Black demonstrators in similar fashion as happened under Apartheid, as the ‘enemy’. It appears the default position of the police is always to come to a protest to 'kick-ass'.

It is high time for the government and parliament to take drastic steps to create a new policing paradigm fit for a human rights culture. This includes retraining the police command, but also more critically, ensuring that police deployed to a civil protest are never ever armed, not even with rubber bullets.