Game Theory Patterns in Organizational Behavior

Organizational behavior often follows predictable patterns rooted in game theory, where individual decisions create systemic outcomes that may diverge from collective goals. Daeus Jorento's analysis examines how incentive structures in workplaces create unintended consequences, and how leaders can design systems to avoid common traps.

The Rationality Framework

At its core, game theory analyzes interdependent decisions where outcomes depend not just on individual actions but on others' responses. As John von Neumann noted, real-world scenarios involve anticipating others' expectations rather than solving deterministic puzzles. In organizations, this manifests as employees responding rationally to reward systems, often leading to suboptimal collective outcomes despite locally logical choices.

The classic Prisoner's Dilemma illustrates this: When individuals prioritize self-interest without coordination, everyone suffers. Organizations face similar traps when:

• Promotion systems become zero-sum games, encouraging competition over collaboration
• Hiring processes prioritize signaling over competence
• Metric optimization triggers Goodhart's Law distortions

Organizational Traps in Practice

Promotion Systems Unclear advancement criteria often reward visibility and narrative skills over impact. This creates several pathologies:

• High performers leave when advancement windows close
• Limited slots encourage scope-hoarding between teams
• Incentivizing "signaled competence" leads to overengineering

Jorento observes: "Rewarding impact and quality matters more than rewarding presentation, volume, or technical complexity. Incentivizing ideas over execution produces smart plans that go nowhere."

Hiring Dynamics The AI arms race in recruitment has intensified existing flaws:

• Mass AI-generated applications force reliance on referral networks
• Unstructured interviews favor likeability over capability
• LeetCode-style tests often misrepresent real-world problem-solving

A secretary problem approach offers improvement: Use initial candidates to establish a baseline, then hire the next who exceeds it. Role separation—where hiring managers source candidates but independent committees evaluate—reduces bias.

Firing Policies Rigid performance quotas (e.g., "fire bottom 10%") create perverse incentives:

• Encourages peer sabotage rather than improvement
• New hires become vulnerable targets
• Creates reputation damage long-term

Yet never firing chronic underperformers breeds complacency. The solution lies in clear expectations, consistent enforcement, and enabling internal mobility for mismatched talent.

Product and Data Team Dynamics

Organizational structure inevitably shapes output—"companies ship their org charts." Data teams exemplify this tension, balancing:

1. Independence needed for objectivity
2. Proximity required for relevance

When embedded under engineering, data teams risk becoming service desks focused on technical metrics. Under business units, they gain strategic influence but face pressure to confirm biases. Jorento advocates "dual alignment":

"Centralized under a strong technical leader with company-wide influence, dotted-line relationships to engineering to maintain production awareness."

Designing Better Games

Escaping dysfunctional patterns requires:

1. Clarity over perfection: Consistent rules beat subjective judgment
2. Impact visibility: Showcasing work prevents resentment
3. Non-zero-sum opportunities: Creating new business lines reduces internal competition
4. Consequence alignment: Ensure decision-makers feel outcomes

The most damaging traps stem from ambiguity. Jorento emphasizes: "If I could avoid one trap, it would be unclear hiring standards, which let unproductive but likeable hires slip through."

Limitations and Tradeoffs

While powerful, game theory frameworks have constraints:

• Assumes rationality, but humans have emotional and cognitive biases
• Solutions require organizational consistency hard to maintain at scale
• Short-term incentives often overpower long-term design

As Jorento concludes: "Not everyone is rational, but incentives compound. Companies can outgrow their problems for a while, but they surface eventually." The most resilient organizations regularly examine their implicit rule structures through this lens, avoiding locally optimal but globally destructive equilibria.