‘There was only one catch and that was Catch-22’
Fellows and Associates’ independent correspondent Zoha Shawoo discusses the phenomenon of the catch-22 and its role in Game Theory
‘Catch-22’ is a phenomenon that leaked into the English language after it’s usage to satirically portray the horrors of World War Two in Joseph
Heller’s 1961 novel of the same name. Used to describe contradictory notions, Catch-22 is commonly defined as ‘a difficult situation in which the solution to a problem is impossible because it is also the cause of the problem’. For example, it is impossible to get people to back up a project without existing funding but at the same time it is impossible to get funding without people to back up the project in the first place. Such Catch-22 situations continue to pop up in real life, particularly in the business world. One prime example of this would appear through the close examination of the different discourses of Game Theory.
Game Theory is a discipline that examines interactive decision-making within business. Therefore, game theory makes it evident that the exaltation of business lies in the hands of interactions. This includes both global interaction and interactions between different firms and organisations, making each contributor a ‘player’ and turning the business into some sort of ‘game’ (1). With this analogy in mind, it becomes apparent that the success of a single ‘player’ within the game depends on the success of all the others, and thus the choices a single player makes must take into account the choices of the other players, who may in turn be taking into account your choice as well as your taking into account their choice, and so on (2). In short, the success of each of the players within the business, or within the global market in terms of how much of a share they hold, depends in turn on the success of each of the other players, and this is where Catch-22 comes in. Keeping Game Theory in mind, the decision that a certain player makes may be crucial to your success, but at the same time that decision may depend highly on the decision that you make if they took your choice into account, leading to a Catch-22 situation.
One particular Game Theory discourse in which Catch-22 comes into play is known as the ‘Prisoner’s Dilemma’. This uses the analogy of two criminals working together arrested as suspects and interrogated separately, with the choice of either confessing and getting a heavy sentence or refusing to talk and getting a light sentence due to lack of evidence. However, if only one prisoner confesses, he gets off without punishment while the other gets a heavy sentence. If both confess, then both get a heavy sentence. Therefore, each prisoner has to keep in mind that the other prisoner may confess and act accordingly, with the success of each depending on the success of the other (1). In business terms, for example in a decentralised supply chain, each individual company acting through self-interest does not produce an optimal profit for the entire chain. One solution that would make the chain more efficient would be ‘vertical integration’, which would cancel out the Catch-22 since a single company would own and be responsible for the decisions of all the factories and stores part of the supply chain. However, this is a rare phenomenon to find within the market (1).
A conventional example used to display the Prisoner’s Dilemma is the 2002 conflict that occurred between Intel and Advanced Micro Devices (ADM), when they both unknowingly slashed their prices at the same time. A company would normally cut its prices as an attempt to gain a greater share of the market, but another company doing the same would not only counteract this effect but would also result in a decrease of profits due to the lower prices. Therefore, both companies would have done much better if neither had reduced prices (3). In order for ADM to benefit, Intel would have had to keep their prices high, but Intel may have cut prices assuming that ADM was keeping prices high, leading to a Catch-22 situation in which neither company benefits.
To conclude, Catch-22 is a rationale that creeps into the business world through the psychology that constructs it; overcoming it lies in the hands of Game Theory or, in other words, ‘playing the game well’.
References:
1. http://web.stanford.edu/~ferhun/paper/GT_Overview.pdf
2. http://www.pbs.org/wgbh/amex/nash/sfeature/sf_dixit.html
3. http://www.academia.edu/2297327/Game_theory_and_its_business_applications
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