Play Games to Improve Cannabis Decision Making

“Games are the most elevated form of investigation.” Alfred Einstein, Musicologist

Cannabis leaders are never lacking in the number of high risk/high reward decisions they need to make, whether that’s pulling the trigger on a M&A deal, raising/lowering prices or entering a new market.  Too often, however, there is a lack of quality analysis and managerial confidence in the decision-making process.
 
One tool that could support the effort is the science of Game Theory. Its genesis was in the military where war planners used GT precepts to understand the risks, costs, and benefits of various moves and strategies. Business-focused, Excel-based GT has been around for over 25 years.

I have used GT to help CPG, pharma and telecom leaders make better decisions, and more.  The facilitated process expands team knowledge, fosters open debate and drives team buy-in to the new course of action. 

GT principles are leveraged using different strategy games. These games are well-defined mathematical scenarios that encompass a set of players (individuals or firms), a basket of strategies available to those players, and a payoff for each combination of strategies. One simple and well-known example of a strategy game, familiar to first year psychology students, is the four quadrant Prisoner’s Dilemma.
 
Strategy games are a powerful tool for predicting outcomes of a group of interacting firms where an action of a single firm directly affects the payoff of other players. Given that each company functions as part of a complex web of interactions, any business decision or action taken by a firm impacts multiple entities that interact with or within that firm, and vice versa. Said another way, each decision maker is a player in the game of business. Therefore, when making a decision or choosing a strategy, businesses must take into account the potential choices and payoffs of others, keeping in mind that while making their choices, other players are likely to think about and take into account your strategy as well. This understanding – quantified through payoff calculations –  enables a company to formulate their optimal strategy.

Ideal applications are strategic scenarios where competitive or individual behaviors can be mathematically modeled.  These situations include: auctions (e.g., sealed project bids), bargaining activities (e.g., union vs management, revenue-sharing negotiations), product decisions (e.g., entering/exiting markets), principal-agent decisions (e.g., compensation negotiations, supplier incentives) and supply chain design (e.g., build vs outsource debates).

GT methodologies are not without their shortcomings which need to be considered in the game design, choice of participants and analytical homework.

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