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Saturday, February 18, 2023

Two Game Theory Lessons from HBO’s Hit Show ‘Succession’

'Succession' is entertaining and well-written. It also has many strategic interactions which give us a good opportunity to learn some game theory.

Image Credit: HBO

HBO’s hit show Succession returns for its fourth season on March 26. The critically acclaimed show is one of the most interesting family dramas on TV, as the Roy family finds themselves in some fascinating situations. As a professor of economics who has taught game theory for more than fifteen years, I am always looking for game theory lessons in contexts my students will know, such as in TV shows, music, or movies.

Game theory is the study of how entities will approach serious situations as if they were a game and the strategic choices they’ll make when playing the “game.” While the term “game” is included, game theory is used to study serious issues like competition between corporations and how to prevent nuclear war. The Roy family provides plentiful opportunities to showcase game theory concepts. I will share two examples below.

In what might be the most obvious warning ever—there are many spoilers ahead.

The Prisoner’s Dilemma in Action

First, Succession shows us the prisoner’s dilemma, and shows it is alive and well. Three Roy children—Kendall, Roman, and Shiv—are considered at one time or another to succeed their father, Logan, as CEO. When in conversations with their father, all of them said quite negative things about the competency of their siblings to handle the role of CEO. By doing so, all of them stand little chance of being chosen—say a 5 percent chance each. However, if they’d all chosen to say kind things about their siblings, it’s likely one of the three would have been chosen, so they’re probability would have been at or close to one in three, or 33 percent.

So why didn’t they cooperate and say nice things about each other? It turns out they were in a prisoner’s dilemma-style game. A prisoner’s dilemma game is one in which the players all get a higher payout if they cooperate, but each has an individual incentive not to cooperate. And therefore, they all end up with a lower payout. And that happens here.

Let’s think about the situation more closely. If one of the siblings, say Kendall, was the only one to speak poorly about his siblings, the others would have had negative things said about themselves while Kendall would have been universally praised. The other siblings would have had no chance, while Kendall would have been an overwhelming favorite to succeed his father as CEO. But since all three siblings have this same incentive, they all start to speak poorly about each other.

This is the most-commonly taught game in game theory and economics, and another context you often see this is with firms competing. If you have two firms in a market, they might do better if both keep their prices a bit higher. However, if only one lowers their prices, that firm would get far more business. But because both firms know this, you usually see all firms end up with lower prices—and engaging in price wars—when keeping prices high would have made them all better off.

While this might be bad for firms, it is great for consumers; a competitive market without government interference tends to give consumers quality products at lower prices.

Bargain From a Position of Strength

A second game theory lesson from Succession is about bargaining theory. When bargaining, it is helpful to have strong alternatives. In game theory, the acronym is BATNA, which stands for the Best Alternative To the Negotiated Agreement. Game theory analysis shows that the better your BATNA, the better outcome you should be able to get when bargaining with someone. Likewise, when your opponent’s BATNA is weaker, you should get a better outcome. Therefore, if you can strengthen your BATNA or weaken your opponent’s, you’ll get a better outcome from bargaining.

Bargaining plays a central role in the action of Succession, but we’ll focus on one situation at the end of Season 1. Kendall is planning a hostile takeover of his father’s company. During a wedding party, however, Kendall takes a ride with Andrew Dodds. When both are on drugs, Kendall drives, gets into an auto accident, and Andrew dies. Kendall escapes, and nobody knows he was at the scene nor finds out about it, or so he thinks. But when someone goes missing, naturally, people get concerned, and eventually Andrew’s body is discovered. Nobody seems to know that Kendall was there, except for Logan (his father) and his team, who find out, and the situation shifts.

Kendall’s BATNA is now far worse, as there is a threat of legal action based on this accident should his father or his team reveal Kendall’s involvement. Because of that, Kendall accepts a bargained position far worse than the one he would have accepted prior to the accident.

In a much less dramatic real-world example, I counsel individuals that the best time to bargain over a job offer is when they are still employed (at another job). An unemployed person has a far worse BATNA than somebody looking to change jobs. For students looking for their first job, having multiple job offers gives them more bargaining leverage than a person with no other offers.

HBO’s Succession is entertaining and well-written. It also has many strategic interactions which give us a good opportunity to learn some game theory. And with economics and entertainment combined, what could be better?

  • Matthew Rousu is Dean of the Sigmund Weis School of Business and a Professor of Economics at Susquehanna University.