In this episode we discuss the fundamental principles of game theory, we correctly guess the answers to SAT questions - without every knowing what the question was! We look at how to use game theory in practical ways, and go deep on how a college professor and his student started a beverage company, sold a billion bottles of tea, and competed against Coke, Nestle, and other major players to become incredibly successful with our guest Barry Nalebuff.
Barry is a Professor of Economics and Management at Yale School of Management. A graduate of MIT, a Rhodes Scholar and Junior Fellow at the Harvard Society of Fellows, Barry earned his doctorate at Oxford University. Barry is the author of several books, an expert in game theory which he applies to business strategy, and the co-founder of Honest Tea which has been named one of America’s fastest Growing Companies
What is game theory?
What are the fundamental principles of game theory?
The difference between ego-centric and being alo-centric
How do you design a system that avoids death spirals?
Everything in life is a game
Barry grills me on game theory with a fascinating example
We crush through some SAT questions and find the correct answer - without every knowing the question!
We use a simple game to understand Nash equilibrium and how that explains third world development challenges and corruption
What is the prisoner’s dilemma and how does it apply to the real world?
How global warming demonstrates a multi-person prisoner’s dilemma
The concept of “signaling” in game theory and how Michale Spence won a noble prize studying it
A real world example of how signaling can be used to change outcomes getting hired
How to use game theory to negotiate and create the best possible outcomes
A concrete example of how to "divide the pie” and reach a fair and “principled” conclusion in a negotiation
Why its important to figure out what the pie is before you determine how to split it
How a professor and his student pooled their resources, started a beverage company, sold a billion bottles of tea, and competed against coke, nestle, and other major players
The concept of “declining marginal utility” and how that shaped the founding of Honest Tea
We explain why a function is maximized when its derivative is zero
The “Babysitter Theorem” and why it was critical to Honest Tea’s success
How Barry and Seth used the Lean Startup approach to launch Honest Tea
Would it make sense for Pepsi to release a perfect replica of Coke?
Barry’s advice for aspiring entrepreneurs
Be radically different
Solve a challenging problem
Succeed without being copied
How Honest Tea prevented their business model from being copied and knocked off