Game theory and construction
Game theory is the study of mathematical modelling techniques, used across many fields where some degree of strategy is needed. It can be used in construction as an efficient framework for decision-making and dispute resolution.
While it was originally based around zero-sum games – one person’s gains result in other’s losses – game theory today is more commonly used as a broad term for logical decision-making and can be used as a tool for project management.
Game theory was first developed in the 1950s by scientists such as John Nash and John van Neumann.
The reason for game theory’s applicability across many different disciplines is that it is concerned with decision-making among groups of people where the outcome for each person depends on the actions of everyone in the group. Using applied mathematics, predictions can be made regarding an individual’s decision-making strategy, depending on the choices and thinking of the others.
The ‘Prisoner’s Dilemma’ is a classic example of game theory, revealing why two ‘rational’ individuals may not choose to cooperate despite both being aware that to do so appears to be in their best interest.
Two prisoners are held for a burglary. Each prisoner is offered the following deals:
- They will serve a full prison sentence if both confess.
- If one confesses and agrees to testify against the other, they will go free while the other will serve the full sentence.
- If neither prisoner confesses both will share a lesser sentence.
It is in both prisoners’ best interest to share the lesser sentence and not testify against one another. However, neither prisoner can be sure that the other will stay silent. According to game theory therefore, both prisoners will follow their self-interest and confess.
Game theory has also been used in the study of the construction bidding practices. Bidding is undertaken between competing parties, with conflict bringing into play many of the factors that influence the decision of the final bid.
A contractor may raise or lower their price due to a lack of information. The ‘winner’s curse’, usually associated with auctions, refers to a tendency for contractors to offer a price which reduces the prospects of the project being viable for them in terms of profitability. Winner’s curse can be attributed to :
- Inaccurate estimates of project costs.
- New contractors entering a market.
- Minimising losses in case of recession of the industry or wider economy.
- Strong competition within the construction market.
- Differential opportunity costs.
- Winning the bid and then increasing the price through variation orders, claims, and so on.
An effective project manager, managing progress and deciding on priorities, will negotiate with a range of different stakeholders and arrive at solutions that are advantageous for the project as a whole.
When entering negotiations, they should consider:
- The issue that has to be solved.
- The parties involved in the issue.
- The parties who will have an impact on the success of the decision taken.
- Whether there are any time or cost issues.
- Whether they should make decisions independently or wait for others to make their decisions.
- Whether mutual gain is possible.
- What their end goals are, and so on.
By looking at the best possible outcomes and working backward from them using game theory, project managers may be able to identify and implement the optimum strategy.
[edit] Related articles on Designing Buildings
Featured articles and news
From the UKs largest manufacturer and supplier of lime.
From mud bricks to smart concrete
A brief history from 7000BC to a future on the moon.
Regulator of Social Housing publishes latest fire safety report
Covering remediation of 11 metre plus social housing sector buildings.
Apartment and Duplex Defects Remediation Bill 2024
Approved for priority drafting by Government of Ireland.
The long list with in the frame of key historical events.
Competence frameworks for sustainability in the built environment
Code of practice, core criteria consultation draft for comment.
UK Net Zero Carbon Buildings Standard Sept update
Pilot version for testing and feedback on its adoption due.
New Floods Resilience Taskforce
With a wet met office autumn prediction.
National Retrofit Hub takeover of Net Zero stage
At Birmingham UK Construction Week in October.
AT Awards 2024 finalists announced
With more to come, prior to the Awards ceremony in October.
London construction cools as hotspots appear nationally
Increases in the East of England, Yorkshire and Scotland.
ARB proposals for a new Architects Code
Announced in the shadow of the final Grenfell Inquiry report.
Combining human creativity and tech innovation now and in the future
Building automation and control systems market study
BSRIA 2024 North America BACS software & services.
Impact of digital technology on productivity in construction
New CIOB academy guidance for companies of all sizes.
Demolition and retrofit approaches in Planning Policy
MHCLG demolition and retrofit survey to inform future updates to national planning policy.
Expert taskforce to spearhead new, new town generation
Sir Michael Lyons given 12 months for recommendations.
Government policy statement on new towns
A coded vision for a new generation of new towns.