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Data Pharaohs & Sufficiently Intelligent Algorithms: Relevance of Game Theory for Business

Explore the concept of Data Pharaohs and Sufficiently Intelligent Algorithms and their relevance in the business world. Understand how the application of Game Theory can transform consumer behavior and shape smart business strategies.

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Data Pharaohs & Sufficiently Intelligent Algorithms: Relevance of Game Theory for Business

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  1. Data Pharoahs & Sufficiently Intelligent AlgorithmsRelevance of Game Theory for BusinessWho Buttoned My Waistcoat?Presentation 2017Patrick A. McNuttVisiting Fellow, Manchester Business School, UK& Smurfit Business School, Dublin, Ireland.www.patrickmcnutt.comFollow @tuncnunc

  2. What is a Data Pharaoh?The ‘likes’ on FB and Tweet buttons and Website Cookies contain codes that track patternsThe patterns are shared or ‘brokered’ as information to companies by data pharaohsHuman or machineFocuses on behavioural targeting and programmatic buyingMale: shopping for chocolate & flowers: eXelateRetail consumers shopping at Tesco: DunnHumbyApp and location: Apple’s iBeaconInstore matching and location: Indoor Atlas/BaiduIBM Watson

  3. What is a SIAL?The AlgorithmMathematical code to understand data by looking for data patternsSmall micro data sets to discover a patternTo understand data and data patternsDigital footprints: online shopping habits to microbial signature of bacteria

  4. What is a SIAL?Sufficiently Intelligent AlgorithmEmbeds mutual interdependence and action-reaction chain of events into a First Order Differential EquationNudge plus time to repeat the patternUltimately, you abandon unilateral decision making & acquire a game DNA

  5. Game DNA?Sufficiently Intelligent AlgorithmRational ‘onsumers’ acquire a game DNA as they bid against themselvesala fictional story of ‘Ralph’s Pretty Good Grocery’‘if you can’t get what you want there you can probably get along without it’The Optimism Bias: the future (t+1) will be much better than the past (t-1)Stockdale Paradox: contradictory beliefs: Examplelife couldn’t be worse now at t and life could be better at (t+1)Law of One Price ViolatedBIN price < END price

  6. Game theory focuses on individual behaviour: Game DNAA game unfolds when there is both mutual interdependence and action-reaction chain of eventsThreat in the DataTraditional: Firm A v Firm B Digital: Rational Consumer v SIALWhen you modify your behaviour you are enveloped by a gameUltimately, rational individual abandons unilateral decision makingYou either play to win (historically, a winning strategy ) or play not to lose (maximin strategy)

  7. From consumer to ‘onsumer’ Outsourcing memory Fast changing preferences: Take-Away to Deliveroo to UberEats to Amazon Drones 3. Precariat Workforce 4. Unwitting Thief: perceptions and subjectivism (= personal experiences, habitual behavior, momentary impulses) the spectrum of irrational behavior So game theory could transform your view of consumers as ‘onsumers’ Allows you to filter habits & routines as ‘cumulatively unfolding process’ so as to influence demand (smart strategy)

  8. Data Asymmetry moving from SAL to SIAL SIAL is Principal to the rational individual as Agent Hidden Action Where the SIAL relies on Agent not to act opportunistically and more sufficiently intelligent the SIAL is, the Agent will comply. Hidden Information Where the individual as Agent does not comply due to a Nudge or chance coincidence Creating an Asymmetry Hypothesis: An algorithm filled with asymmetries at every point in time (up to a nudge) can be superior to a system perfectly efficient at every point in time

  9. Premise: Prediction Depends on Asymmetries and Finding a PatternCollect everything about ‘making scrambled eggs’ but the algorithm cannot make a scrambled eggSIAL can make a prediction but tell you neither what will cause the event nor why.A game is like ‘a behavioural process, a sequence of actions and reactions at time period t with consequences at time period t+1’Lets take an example: The Daily Routine

  10. Information is embedded in observed behaviour Btduring the time continuum from t to t+1. • Bt+1 = Bt + Δ • Δ is the nudge parameter that • policy makers, management, data pharoahs and strategistscan influence. • RANDOMNESS-> • NUDGE-PATTERN • SEQUENCE-CODE->PREDICTION

  11. Sufficiently Intelligent Algorithm (SIAL)Focuses on (the roots of the tree): WHY?THEY ARE THE COGNITIVE KEY THAT DECODES INDIVIDUAL BEHAVIOURBT+1 = BT + ΔIN THE DAILY ROUTINE WE HAVE Nudge zone: 8.20 - 8.25a.m

  12. Daily Routine Algorithm: Decision Tree

  13. Cognitive Business Strategy http://www.patrickmcnutt.com/news/game-ontology/ 1. Thinking about moves or strategy ‘I think-you think-I think’ 2. Signaling occurs in a game Observe the playbook as patterns Influence the patterns Code the patterns 3. Visualisation of strategy: Covington McNutt or Humantific

  14. Business Opportunities: FROZEN MARKETS So game theory could transform your view of a competitor Allows you to shape strategy (smart strategy) (i) Missing Markets BIN (price) < END (price) BIN + Δ = END (ii) Empty Markets

  15. with signaling everything is changing What should I do? Reasonable or Rational Behaviour? With all the chaotic information available ‘what you are’ and ‘who you are’ defines your Daily Routine and algorithms convert it into information = a valuable tradable asset, so Stop and Think. Know Your Pattern Observe but do not judge.

  16. with nudge PLUS TIME everything is changing What should business do? With all the chaotic information available ‘what you are’ and ‘who you are’ defines your Daily Routine and algorithms convert it into information = a valuable tradable asset, so Cloud storage: Box Inc, Trend Micro, MS Azure, IBM Cloud Anti-Virus Software for Smartphones Intelligent plants VR Net Neutrality

  17. Thank you for listening……… ‘Habit is a great deadner’ Samuel Beckett Waiting for Godot Act II

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