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Predict The Future By Observing The Past, Says Game Theorist

Professor Patrick McNutt, Visiting Fellow at Manchester Business School, says we can observe behaviour patterns in business to predict with a degree of probability what will happen next

Some people argue that Economics isn’t a predictive science; that you can’t model the future using data or observations from the past.

But game theorists disagree. According to game theory, it’s possible to observe the behaviour of rational players in a game (any two individuals or groups) and predict what decision they’ll make next. As long as you have sufficient information about the players’ types and you know both the rules and dimension of the game, you can model the probability of future decisions.

Whether you’re watching the interplay of two soccer teams (e.g. Manchester United versus Barcelona), two chess players (e.g. Bobby Fischer and Boris Spassky) or two corporate competitors (e.g. Apple and Google) you should be able to notice “patterns like footprints in the sand” says Professor Patrick McNutt, a proponent of game theory.

A mathematician and behavioural economist, formerly Professor of Political Economy at University of Ulster, and graduate of the University of Oxford, McNutt thinks game theory is a “wonderful way to get people interested in Economics” although he acknowledges it needs to be “more intuitive and less mathematical” for a non-academic audience to understand.

McNutt divides his time between academic work and consulting. He works to identify and implement creative opportunities for you and your company or organisation, deploying economic and game theory tools, where appropriate, in a refreshing and innovative way, in order to provide you with critical insights and forward looking ideas.

A Visiting Fellow of Manchester Business School Worldwide, McNutt teaches MBA courses such as ‘Managerial Economics’ and ‘Ethics & Governance’ to business students in Manchester, Singapore and Dubai. He has published a hefty selection of academic literature including a book on how businesses can think strategically: ‘Game Embedded Strategy’.

McNutt also consults for major corporations using the principles of game theory to run executive workshops, coach managers, map competitor landscapes and even predict share price movements. He says he helps organisations and senior executives to “look in a non-lateral way into the future by looking at what decisions have been made in the past”. He has worked with many different private companies as well chairing the Irish Competition Authority and acting as a government consultant to the island of Jersey.

Professor 'Paddy' McNutt

McNutt provides numerous examples of how game theory is applied in every day life – ranging from the Behavioral Science unit of the FBI, the generic patent competition in the pharmaceutical industry and even the Google Plus and Facebook timelines that are attempting to filter people’s lives into patterns.

McNutt uses game theory to explain the outcome of a recent European soccer (football) match. When Spanish team Barcelona play non-Spanish teams the pattern is for them not to score a goal in their first 30 minutes. If you’re the manager of the opposing team you know this, but the manager of Barcelona also knows this.

The ’30 minute no goal’ pattern was broken last year when Barcelona scored against Manchester United in the 27th minute. Both sides knew the established pattern and, as predicted by game theorists, Barcelona won the match by scoring an early goal and creating a first-mover advantage.

Another example McNutt likes to cite is “the smart phone game” (video commentary on his webpage) where he argues that Apple might not necessarily win the game. Google now have EU permission to acquire Motorola in Europe and have pledged regular software updates for Google smart phones (the so-called ‘Android Alliance); Samsung, HTC and the MS-Nokia alliance are significant competitors in 2012. The dimension of the game may be in Google’s favour. The winner will be the player who obtains a sustainable competitive advantage in the smart-phone game – and that depends on winning the sub-game, that is the ecosystem, iOS v Android v MS.

So whether it’s phones, personal everyday choices, chess competitions, corporate battles, power struggles or soccer matches, behavioural economists say there’s a way to observe, explain and predict behaviour using game theory.

On 18 April 2012 Patrick McNutt spoke at a BusinessBecause MBA networking event at Google's London offices. Themed 'Google, gaming and getting ahead', the evening kicked off with a game theory talk by Professor McNutt followed by plenty of wine, canapes and discussion amongst pre-MBAs, current business students and alumni.

 

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