Three principles from game theory can shape successful strategies for a chaotic world
There’s a video of celebrated Yale professor Ben Polak orchestrating a sponge-throwing competition between two academics to demonstrate game theory. Its essence is thinking through rational choices when the outcome depends on the actions of others – and Polak’s old video offers three principles with new resonance for leaders navigating today’s chaotic environments.
The dominance principle: do X regardless
The first is deceptively simple. If in circumstance P you should do X, and in circumstance not-P you should also do X, then just do X. Don’t wait to see how things develop. Act now. This is called a dominant strategy.
Organizations waste huge amounts of time and money on unnecessary analysis. Jeff Bezos once observed that while people ask him what will change in 10 years, almost no one asks what won’t change. Yet that’s the more important question, because it can be the foundation for a winning strategy.
Bezos was articulating a dominance principle. It’s why Amazon relentlessly invests in logistics infrastructure and deepens its fulfillment capabilities, regardless of how competitors or the wider economy are performing. The implication for leaders: ask regularly whether there is a move you should be making regardless of what happens next. If the answer is ‘yes,’ the strategic debate is over. Don’t analyze it – do it.
Backward induction: begin at the end
The second principle is about sequence. Backward induction means starting from a desired end state and working back to identify the steps required to get there. Amazon calls this “working backward.” Every new product or initiative begins with a mock press release, written as if the initiative has already succeeded. From that imagined future, teams map the decisions, milestones and investments required.
This is the same logic behind reverse income statements – starting with the profits a venture must generate, and working backward to reveal the assumptions that need to hold true. It disciplines the organization to ask: what would have to be true for this to succeed, and what does that require of us today?
The casino mistake
The third principle is perhaps the most psychologically challenging. Research on casino behavior reveals a consistent pattern: players don’t quit when they’re ahead, only when they’ve lost enough to feel the pain. They let winning positions erode and hold losing ones too long, hoping things will turn around.
Corporate strategists do the same. Companies that achieve market leadership – Nokia in mobile phones, Sears in retail – rarely exit at their peak. Instead, they continue to invest as the evidence mounts that their position is deteriorating. Accumulated gains are squandered defending a game that has already changed. The rational move is the opposite: when you are ahead, harvest the value of your position and redirect resources to the next game.
Monica Nassif, founder of premium home-fragrance and cleaning brand Caldrea, understood this. As Caldrea grew, she reasoned that it would attract imitators – so she launched a second line, Mrs Meyer’s Clean Day, targeting consumers who loved Caldrea’s aesthetic, but not its premium price. She cannibalized her own business before anyone else could. And when homeware retailer Williams-Sonoma inquired about producing a white-label version of her products, she said yes. Securing a position as the retailer’s partner created a deeper relationship that a competitor couldn’t easily displace. The lesson? Never confuse a winning position with a permanent one.
The strategic imperative
These three principles point toward a common discipline: clarity about what you’re actually deciding, rigor about the sequence of decisions, and the emotional fortitude to act on logic rather than wishful thinking. The question for every executive is simple: are you playing the game intentionally and proactively – or are you still at the table hoping your luck will change?
Rita Gunther McGrath is professor of management at Columbia Business School and a Duke CE educator
