# Background to Game Theory

Part one introduces some of the basic elements of Game Theory. Not the most appetising way to start a book, but, as a rudimentary knowledge of Game Theory is going to be essential to anyone using the Internet for business it is best to get this propeller head stuff out of the way first.

You might well ask why Game Theory should be so important in e-business. It is because Game Theory is the most appropriate framework for dealing with uncertainty, unknowns, complexity and competition. This is the environment in which e-business will be conducted. It is an environment where conventional business methods and procedures are severely compromised and start to break down.

Conventional business is based upon eliminating uncertainty wherever possible to allow reasonably accurate predictions to be made. This is fine if you know what uncertainties there are, but, in the fast moving world of communication technology this is not possible. Predictions are therefore always highly suspect.

Game theory is based upon the enigmatic and counter intuitive effects of the laws of chance and probability. These effects defy logical explanation - but, this is why Game Theory is useful. It works when logical reasoning cannot come up with the right answers.

## Starting with the basics

The enigmatic nature of probability

The mystery War games

Predicting the future with probability

A free holiday in Monte Carlo

## Through the looking glass

Borrowing money to play roulette

The analysis of a roulette system

Relating roulette to business

The source of profit

Going through the looking glass

What does it mean in the real world?

Implications of the roulette results

A seemingly impossible problem to solve

Dealing with unknowns and uncertainty

## Choosing in conditions of uncertainty

Feedback from the cafe

Many small risks or one big one?

A range of possibilities

But it is possible that you can never win

Clearing up a paradox

# Dealing with complexity and information overload

Part one dealt with chance and probability. This is a kind of uncertainty, but, it is the kind of uncertainty that can be handled with mathematics to bring about some degree of order and predictability. Once you ascertain probabilities, decisions can be made. However, it is not always possible to ascertain probabilities. Sometimes, it isn't even possible to know what it is you have to get the probability of.

In this section we are going to deal with quite a different type of uncertainty, where mathematics cannot help at all. It is the uncertainty and confusion that is caused by complexity and information overload. It is the uncertainty caused by having too many personal knowledge gaps and knowing that everyone else has knowledge gaps as well.

This is the real world of e-business, where it is not about knowing what is the best action to take but deciding what to do when you can't possibly know what is the best action to take.

Mathematics can't handle this kind of problem. But, a Game Theory framework can.

## To start an e-business venture with a great business idea is the wrong approach

The value of a business idea

Making your own luck

Becoming part of a system

The big picture

Islands in a sea of randomness

The new paradigm shift

## The problem of knowledge gaps

Coping with technology

Being able to appreciate individual limitations

The resolution of a paradox

Jig-saw puzzling

## Understanding and coping with knowledge Gaps

The need for a few fundamentals

Paradigm shifts Learning in the environment of e-business

Cooperative learning environments

Limitations of the cooperative learning environment

Collaborative learning

Collaborative learning on the Internet

# When the managed team doesn't work

Fundamental to all Industrial Age business theory are the concepts of planning, cooperation and the managed team. The problem for organisers and managers, switching over to e-business from a conventional business environment is that these concepts are not always viable or practical in a massively connected world.

Part three explains why these concepts are highly suspect; why they break down. It offers alternatives that are more reliable.

This part was intended to be a single chapter, but, the disbelief and the reluctance to accept that planning, cooperation and managed teams are inferior organisational constructs in the information environment has necessitated stretching this section out to four chapters.

There is much repetition, as the same points of view are approached from different angles, but, it is essential for anyone using the Internet for business to break away from the central dogmas of conventional, Industrial Age business theory. It is not that they are wrong, it is just that they don't work in the world of the Internet the same way as they do in the world of bricks and mortar.

## A cooperative team versus a collaborative team

Blind spots can inhibit understanding

The need for a new kind of thinking

The limitations of a managed team

Team management

Problems for a leader

Cooperation or collaboration?

## The enigmatic nature of creativity and success

How do you make collaboration work?

An industry founded upon collaboration

In the beginning

The process of creation

The enigmatic nature of an auteur's contribution

When you run history at fast forward

Last minute good ideas

## A collaborative environment

Getting business ideas into perspective

The emergence of a system of collaboration

An autocratic system

Soliloquies as an e-business strategy

The role of the auteur

## Different interpretations of collaboration

The main players in the game

The collaborator's view point

How collaboration emerges

How nature finds solutions.

It's not the rate of change, but, the changing rate of change that is the problem

More than one solution

An example from the world of bricks and mortar

# Creating a group of contacts

Fundamental to all Industrial Age business theory are the concepts of planning, cooperation and the managed team. The problem for organisers and managers, switching over to e-business from a conventional business environment is that these concepts are not always viable or practical in a massively connected world.

Part three explains why these concepts are highly suspect; why they break down. It offers alternatives that are more reliable.

This part was intended to be a single chapter, but, the disbelief and the reluctance to accept that planning, cooperation and managed teams are inferior organisational constructs in the information environment has necessitated stretching this section out to four chapters.

There is much repetition, as the same points of view are approached from different angles, but, it is essential for anyone using the Internet for business to break away from the central dogmas of conventional, Industrial Age business theory. It is not that they are wrong, it is just that they don't work in the world of the Internet the same way as they do in the world of bricks and mortar.

## Introducing the Genetic Algorithm

Scary words and arcane theories

Word of mouth and viral marketing

Engineering a craze

A very simple strategy for success

The structure of an ecosystem

The magical algorithm

Applying Genetic Algorithms to e-business strategies

The position of the collaborator or freelancer

## A question of trust

Advantages of using a Genetic Algorithm Strategy

Apparent problems with a Genetic Algorithm Strategy

What is the role of the auteur?

Dealing with the problem of trust

Sensible game play

The importance of credibility

Planning or strategy?

Various kinds of cooperators

## Creating a community trust

A disorienting chapter

Difference between a plan and a strategy

Heuristic strategies

A perfect example of a heuristic strategy

The most important of the commandments

Nomadic tribes and the Internet

Back to a personal cognitive model

An alternative strategy

# Communication strategies

The first four parts of the book were about thinking and theory. They provided essential background for action, but, not the action itself. In part five, attention is switched to finding a way to apply this knowledge to practical purposes in the real world.

In the first of these two chapters, the Internet is transformed from an apparent sea of random noise into a valuable information network. The second chapter sets about devising strategies to make efficient use of this valuable resource.

While reading through these next two chapters, the foremost thought in the mind of the reader should be "How can I make strategic use of the Internet to help me solve all the problems associated with my chosen niche in the world of e-business".

## The information ecosystem

Whole world versus local world

Egocentric pockets of organisation

The Kevin Bacon game

Small world clusters

The surprise

The significance of small-world clustering

Multiple, simultaneous meetings

The viability of having many contacts

Universal implications of small-world clusters

Effects on sales and marketing

The sociogram

A strategy for interfacing with the network

## Communication strategy

Message capacity limitations

The filtering process

The strategy to reach a goal

The role of feedback

The principle of the servo mechanism

Why should people collaborate?

An evolving system of contacts

Rejection and redundancy isn't a problem

How do you choose your contacts?

E-mail discussion forums and news groups

A newspaper metaphor

The uniqueness of e-mail discussion forums

# Bringing it all together

The biggest problem in dealing with the Internet is that it makes demands upon our brain that the human brain hasn't evolved to cope with. We have evolved memories and neural information processing mechanisms designed to cope only with a limited number of people and a limited communication bandwidth.

Now, the Internet is giving opportunities and information that is taxing the human brain beyond its limits. It is completely overwhelmed by all the complexity and over-choice.

Most people are coping by limiting their use of the Internet so that is doesn't over load their natural neural systems. They place strict limits on the number of people they deal with. They confine their information to fit in with the bandwidth that nature limited them to. But, there is no need to limit ourselves to within the capabilities of our natural human brain. We have computing power than can selectively enhance its ability to deal with larger numbers of people and an increased bandwidth.

As an example of the way in which computers can enhance the ability of the human brain to cope with complexity we need think no further than the spreadsheet program. This has massively enhanced the capability of the human brain to handle mathematical calculations and logical modeling.

This final part describes a way of using the computer to do for the human brain in communications what the spread sheet did for it in mathematics and logic. An enhancement that provides super human powers to cope with extensive communication, complexity and information overload.

The difference though is that a spread sheet deals only with logical reasoning and known quantities. For most problems in e-business we need to be able to cope with the illogical, the unexpected and the unknowns.

## The cafe as a case study

The third dimension of e-business

Similarities between different players in the game

Advantages of a personal Web site

Discovering that it is a fast changing world

The background

The Interaction of cafes and tables

## Customers as product designers

Panning for gold

The only designers who know what to design

A cafe as a guidance device

The dilemma

The problem of content

Creating the cafe

The cafe as a problem solver

The cafe as a guidance system

An organic intelligence system

Reconfiguring the cafe

From book writing to e-business

Final conclusion