From the CD-ROM "Concepts and strategies"
Competing for cooperation
by Peter Small
Games of competition
Competition is not something that can be formulated: if there is a known way to win then there can be no competition. Competition is about playing strategic games and these games come in two different forms: zero sum games and non zero sum games. Distinguishing between these two types of game is absolutely vital in order to be able to devise a suitable strategy for e-business or e-commerce.
Zero sum means that if you take away the losses of the losers from the winnings of the winners the result is zero. In other words, winners win what losers lose. But, not all games are zero sum games. There are games where winners win more than the losers lose. There are games where losers lose more than the winners win. These types of games are called non zero sum games because if you take away the losses of the losers from the winnings of the winners the answer is not zero. Non zero sum games include games where all the competitors lose, or, all the competitors win.
Most people think of all competitive games as zero sum games, where the winners win from the losers, but, in the world of business, especially e-business, these are the games to avoid. Seeing business as a non zero sum game is another of those counter intuitive notions, another paradox. How can someone gain if that gain is not at the expense of someone else? Solving this conundrum is the key to creating successful e-business and e-commerce strategies.
Where does profit come from?
The enigma seems to be "Where does the money come from if there can be more gains than losses". To see how this can be, let's first take a look at the non zero sum type game that produces more losses than gains. In most of the poker clubs run in London during the 1960's, the clubs made their profits by taking a percentage of the money bet at each hand. A croupier would be responsible for dealing all cards and organising the betting and at the end of each hand would remove five percent for the house before passing the winnings to the player who'd won the hand. Although this was quite acceptable to the players - as only the winners appeared to be paying - the reality was that this was gradually draining money out of the game.
After long poker sessions, which could last for perhaps twelve or hours or more, it wasn't uncommon for every single player at the table to be losing. The continuous drain on the money in play would have siphoned practically all the money into the coffers of the house. This same situation exists in casinos that run roulette. Here it is not so obvious that money is being siphoned off by the house because it is veiled by the laws of chance. Some people actually think that it is possible for a casino to lose, but, the statistical probability of this happening is probably less than the chance of getting struck by lightning.
If a game of roulette runs with a single zero, the house will be siphoning off one thirty-seventh of the punters bets at every spin of the wheel (on average). With an efficient croupier, this can amount to almost twice the average amount on the table at each spin, going to the house each hour. If you want to check this out with some maths, just calculate what one player, betting 37 dollars at each spin of the wheel, is likely to be losing after an hours play of sixty spins. If the house is on average taking one thirty-seventh of each stake, the poor gambler would probably be losing about sixty dollars an hour (on average) whatever system he or she is playing.
If you include the house take, both the poker and the roulette games are zero sum games. But, if you look at the house take as an unavoidable overhead (the players having to pay to be in the game), then the players are in a non zero sum game where their total losses are greater than their total gains.
Imagine now, a poker session where the house, instead of taking out five percent from the kitty, adds five percent more to each kitty before passing it onto the winner. Imagine a game of roulette where the zero acted like a wild card and everybody won when the ball lands in the zero slot. If you exclude the house, this would be a non zero sum game for the players where total gains exceed total winnings.
Which type of game is it preferable to be in:
1) A game where the house takes a percentage of the stakes?
2) A game where the house lets the players play for free?
3) A game where the house adds some money to each bet made?
You'd have to have something wrong in the head not to prefer option 3, so, wouldn't it make sense to make sure you played in option 3 games rather than the other two? How then, do you recognise an option 3 game in e-business and e-commerce? How can you find a competitive win-win game where the gains are more than the losses? The trick is to understand where that extra money is coming from and how it is getting into the game.
Conversations about money
The CD-ROM, "How God Makes God" is about the Sun and the Earth having a discussion as to the nature of the life forms that have appeared on the Earth's surface. The method they use to find out about the human life forms is to listen in to various conversations.
They are particularly puzzled by their observations that the human life forms have emotions that unconsciously motivate them towards particular patterns of behavior.
They are also intrigued when they discover humans are interested in making money and are surprised when they find out that many business associations end up with everybody gaining from the association (a win-win, non,zero sum game). They resolve this mystery when they overhear a conversation where they discover that making money is the way in which humans have evolved to become increasingly efficient at using energy:
"What are you thinking about?"
"I am not thinking."
"I am reprogramming my brain."
"Reprogramming your brain?"
"Yes, I have just learned that money can be equated with energy."
"That's fairly obvious. You can buy things that you'd otherwise need energy to get for yourself, but, why should you need to reprogram your brain?"
"Because all my previous associations with money had not registered that connection. Without that connection, between money and energy, my thinking will be sloppy when I am making financial judgements."
"How do you reprogram your brain then, to equate money and energy?"
"Well, you have to rethink everything you have learned about money and substitute energy for money or value."
"Give me an example."
"Okay, this is the way my reprogramming thinking goes. In a commercial situation most of the people involved appear to be trying to gain money or value. If money and value are seen as amounts of energy, successful businesses making money are effectively winning energy. This must mean that business can be considered as a game to win energy. If the game is a "non zero sum" type game, a game where everybody can win, there must be energy being introduced into the system somehow."
"Energy being put into the system?"
"Yes, if all the players are winning energy it has to come from somewhere."
"Oil is being pumped out of the ground at an energy cost far less than the energy in the oil. This will introduce energy into the system. Similarly with gas, coal, hydro and nuclear power. This is one of the reasons why economic activity can be a "non zero sum" game with more winners than losers."
"Wait a minute. This does not fully explain money making. People were making money long before these energy sources came into being. And money can be made when a prime energy source is not involved; the service industries for example."
"You are quite right. Introducing energy into a system is not the only way to create "non zero sum" games. People can also benefit from most commercial situations through energy being saved. Most business profits arise through the sharing of energy that has been gained through doing or making things more efficiently."
"I don't quite understand?
"I'll give you an example; is it necessary for you to go to farms all over the country to get your food?"
"No. I get my food from the stores."
"This must mean that your local grocery store together with other middlemen collect all the food for you; arranging for everything you need to be brought to one single convenient place for you to collect. This saves you a lot of time and a lot of energy. Not only do they do this for you but they also do it for everyone else in the area."
"I see, because they do everything in bulk they can do it more efficiently?"
"That's right, if you can imagine all the energy saved by you and all the other shoppers not having to traipse about all over the country to get your food you can see that the energy saving is enormous: far larger than the energy required by the store keeper and the middlemen who organize everything."
"And the Profit?"
"You and the other shoppers do not mind giving up a little of your saved energy to pay for this benefit so the store keeper and the middlemen can cover their costs and make a profit. Now can you see how everyone can benefit from saved energy?"
"I must admit that it is an interesting way to look at things "
"The value to me is that it gives me a way of looking at how to make money. Money does not have to be made through taking it away from somebody else. Money making does not have to be a cut and thrust game between antagonists who try to take from each other. It can be a "non zero sum" game where everybody can win and nobody need lose. The game of making money need not about taking other people's money: it can be about trying to be more efficient and profiting by saving energy for people."
"So making money need not be a battle of wits: it is a thinking game? "
"Yes, thinking up more efficient ways to save energy for people."
After hearing this conversation, the earth and the sun go on to find out that energy is effectively created when people co-operate with each other. They come to the conclusion that co-operation is the main mechanism that saves energy and it is co-operation that is effectively the main source of wealth creation for human life forms. Here is another of the conversations they overhear:
"How is it that such an intangible thing as co-operation can produce a tangible thing like wealth?"
"Co-operation has the effect of increasing the efficiency of doing things. Increasing the efficiency is the same as making more time. The time that is saved or made depending upon how you choose to look at it is available to do other things such as creating luxuries and wealth. If there were no co-operation at all, the human race wouldn't have the time to create any wealth. Everyone would need every scrap of time available just for basic survival."
"Give me an example."
"Imagine a jungle where all the natives who live there have never learnt how to co-operate with each other. Suppose each of these natives makes an axe for himself to be able to cut down trees to build a house. Each makes his own spear for hunting and each casts his own individual iron pot for cooking."
"I see if they co-operate and share these items they need only make one of each?"
"Right, and the time they saved could be used to make something else."
"So in effect those who co-operated could become wealthier than those who didn't because they would have extra time for making additional luxury goods or whatever else might be considered as wealth."
"They could co-operate by specialising as well. If one was a good hunter and did all the hunting; another was a good builder and did all the building and the third was a good cook and did all the cooking they would all have plenty of well cooked meals live in well built houses with all sorts of little extra luxuries that could be produced in the time they saved by working efficiently together."
"They would certainly appear to be wealthier than natives who never co-operated together. So if co-operation is the key to creating wealth it must be the key to making money?"
The Earth and the Sun then go on to discover that humans are not identical to each other in many different ways: physically, mentally and emotionally. This leads them to conclude that these differences are not just spurious effects of the reproduction process, but, are more likely to be an evolved variance that makes it imperative for humans to co-operate with each other.
The argument is that by nature maintaining a difference between individuals, humans are forced to co-operate with each other in order to be able to compensate for any inadequacies they are born with. This co-operation is seen by the Earth and Sun as being instigated and re-enforced by evolved emotions that are soft- wired into their brains.
This is how their conversation proceeds at this stage:
"I can understand now how this mass of human life forms gets to succeed. Each of the life forms is slightly different from the others. By combining their various attributes they can use energy resources more efficiently."
"So you think it is this co operation between the life forms that is the source of their wealth?"
"It would seem to be but that presents an enigma."
"What do you mean?"
"Well, if the life forms' emotional devices are encouraging them to compete with each other for resources, how does it also get them to co-operate with each other?"
"I see what you are getting at: competition and co-operation would seem to be require conflicting emotional directives."
"Let's see if we can get some information to solve this puzzle."
Indeed, this is the enigma. Humans have evolved to be competitive but also to be co-operative. These tendencies seem to require mutually exclusive behavior. But, it is the resolution of this paradox that leads to the formulation of efficient and effective business strategies.