Personal Site of Bill Hall

Game Theory vs. Behavioral Economics vs. Game Mechanics


When I'm talking with perspective customers, I often have to reference economic game theory, behavioral economics, and game mechanics. You can practically hear them fog over in boredom and discomfort about where the discussion is going. A couple sentences later, most are very interested in what all this means, why/how it applies, and how it can actually be used. This is a short article about what,why, and how. Here goes:

To start, lets take a look at some quick definitions (all from our friends at Wikipedia):

Game Theory (applied to economics): The study of mathematical models of conflict and cooperation between intelligent rational decision-makers.
Behavioral Economics: The effects of psychological, social, cognitive, and emotional factors on the economic decisions of individuals and institutions and the consequences for market prices, returns, and resource allocation.
Game Mechanics: Game mechanics are constructs of rules or methods designed for interaction with the game state, thus providing gameplay.

Do you remember the game as a child, "Which one of these does not fit?" Well, in this case, the third one: Game Mechanics is the odd ball. It certainly fits when it comes to how you make a corporate strategy game for use as the architecture for business simulations (what I make for a living). But it's the odd ball in this case.

How do all of these fit together? Well, as most of you know, I'm not a big fan of academic theories. They are usually too 'perfect', 'sanitary', and don't always hold up to the test of time once applied outside the walls of academia. In this case, I'm not a fan of Game Theory. Why? Well, it's interesting, and fun to play, but really look at the definition: it assumes a) cooperation, b) intelligence (at all times), c) rational behavior when it comes to decision making. This is just comical. I don't remember meeting people who are all of those when making most any decision. We are far too influenced by our history, emotions, and upbringing.

Let's look at behavioral economics: This takes into account our history, tendencies, environment, and a lot more. This is interesting stuff. Why does this matter? Because when you are listening to people give you advice, tell you what's best, or talk to in general, they are 'under the influence' of life. It's important you remember that.

Why do I talk about this to customers that are thinking about a business simulations? Easily, it's because when I write the mathematical models and the computer code that makes my sims work, they are entirely void of game theory and full of game mechanics. The mathematical models I create are exceptionally complicated (too much so these days) because it's their job to account for the participants action history, adapt, and react. This makes for a true simulation. The sims actually become adaptive and change their 'mood' depending on the history of the participants.

So, there you go: Game Theory vs. Behavioral Econ, vs. Game Mechanics. Summed up: Game theory is interesting and fun, but not especially useful (opinion). Behavioral economics takes people's emotions into account in decision making, and game mechanics are how games are created. This is everything that goes into a more simple business simulation solution. Aren't you glad you took the time to read this?