Forward Opaque and Backward Transparent

 

Forward Opaque and Backward Transparent is a term we use at Priiva that describes our methodology, and game theory methodology more generally.

“Forward Opaque” is the reason we can eliminate personal bias from decision making.  This type of bias can be lethal – McKinsey wrote a nice article guarding against this kind of bias.  Great advice, but game theory methodology actually helps avoid even having to be on guard – it avoids the bias altogether.

As you debate most topics in your organization, like budgets, role assignments, or strategic directions, the opinions expressed by those involved are likely to be biased by the eventual impact they believe the issue will have on them personally, or for a good manager, perhaps the staff they represent.

These debates are “Forward Transparent”, meaning that the opinions taken during the debate are susceptible to personal bias because those involved can speculate which side of the issue has a more favorable impact on them personally.

When you apply game theory to your strategy and decision making, the essence of the debate changes.  You don’t debate the merits of known outcomes A vs. B.  Rather, you debate what is most important to each of the stakeholders (or players) involved in that issue.  The entire debate shifts to be “Forward Opaque” because you don’t really know how importance for one specific player might impact the overall predicted outcome from the entire simulation.

Once you have settled all your debates on importance, the mathematics behind game theory determines your best possible outcomes.  Those outcomes are “Backward Transparent”! That is, the mathematics can be reverse engineered from the predicted best possible outcomes back to the importance assumptions made about each of the players.

Using this technique, you take away the ability to “game the system” – bad pun.  Intrigued?  Here are some more thoughts on my experiences applying game theory to decision making.

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