The Prisoner's Dilemma: Applying Game Theory to Agile Contracting
Add to calendarI propose that the larger issue with Agile Contracts is not that we don’t know how to write them. After all we know how to deliver Agile projects, so a contract can simply describe that process. The problem is with making Agile Contract commercially competitive; against suppliers who are offering the promise of delivering the perfectly predicted dream - offering the certainty that people crave. This is a prisoners dilemma, with organisations driving themselves towards a sub optimal solution. Through game theory we will explore ways in which to improve the appeal of the agile offering.
Who am I to talk about contracts and game theory:
- My Education
- Comp Sci, MBA, Corporate Law, Behavioural Economics
- My Experience
- Large scale contract negotiations
What is a contract, really?
- A contract is not a piece of paper
- A contract is not a plan
- Invitation to treat
The Agile Manifesto on Contracts
- Customer Collaboration over Contract Negotiation
- Sounds good, but how easy is it to do in practice?
- What other parts of the manifesto push the “contracting buttons”? - quite a bit!
- Satisfy the customer? Or Satisfy the contract? The Agent principle problem again. (exercise/demonstration)
- When contracts are required
- Based on the distribution of Scrum Roles
- Based on limitations to agility
- Agile Challenges the rules, so why did we expect our standard contracts to fit?
- Sidebar: Positive vs Natural law. The letter vs. “What is fair”
- What were contracts originally intended to do?
- Where did contracts come from? What is their basis in law?
Game Theory, Decision Theory and Moral Hazard
- Introducing the Prisoners Dilemma (exercise)
How do people make decisions?
- Economic Naturalism
- How cognitive limitations affect consumer behaviour
- The Agent Principle Problem
- Your personal history and it’s effect on opportunistic behaviour
So you think you’re rational (exercises)
- Single shot two player games
Multiple round two player games
- for the two player games, the audience splits into threes, 2 playing, one observing and plays through the exercises as presented - observer reports back on findings both subjective and objective (score sheets provided)
Single shot Multi player games (tender/bid simulation)
- Multiple round multi player games (blind auction simulation)
- As above, but larger groups (4-5 players)
- In which contracting situations are we playing these “games”? (examples)
- What were our outcomes?
- Did the “players” truly believe they were being rational?
- What were the expected pay-offs? What were the actual pay-offs? What was the “optimal solution”
Why do we “document” contracts
- Understanding legal reasoning
- Example of poor use of contracts
- Who’s at risk?
- Why contracting is a game
- “I will pay £500 to anybody who returns my lost kitten”
What are the real problems with Agile contracts?
- Why organisations are incentivised to choose the Waterfall solution
- Based on experiences in the simulations, would you really choose differently?
- What an Agile contract really represents, and why that scares people
- Theory of Altruism
- Agile is Rational, people are not. Ironic?
How we can improve the contracting process to make agile projects more palatable
- How Decision and Game theory has aided other disciplines
- “Changing the tax system” - impossible, or at the very least, not worth it. I’m rational! What advantage is there to me!
- Legal reasoning is not the same as project delivery
- Co-operative dispositions can solve prisoners dilemmas!
Practical Applications for the Future
- Long term objectives
- Incentive Schemes for sales people
- Agile procurement
But I need wins tomorrow!
- Short term wins
- Moving from theory to practice
- A contract has to be acceptable in order for it to be effective
The typical pain points and how to ease them:
- Lawyers
- Procurement
- Requirements for a contract to be truly enforceable
The effect of co-operative behaviour on our Prisoners Dilemma (final exercise)
- What is a prisoner’s dilemma and why this matters for agile contracting
- Why organisations still choose waterfall contracts even if they believe in Agile
- Understanding the commercial decision process in a variety of acquisition situations
- How an understanding of decision and game theory has improved other disciplines
- Why organisations feel they are better off choosing a Waterfall contract even if they believe in Agile
- What an Agile contract really represents, and why that scares people
- How we can improve the contracting process to make agile projects more palatable
- Which contracting and sales situations are particularly “Agile hostile”, and why
