The Ludic Fallacy | Income Outcome

Watch Out for the Ludic Fallacy:

Don’t Let it Spoil Your Business Simulation Game Experience

Written by Nikolai from Income|Outcome

Humans have been modeling life with games since at least the First Egyptian Dynasty and have been using what they learn from games in their day-to-day lives for just as long. This is usually quite useful; we gain collaboration, benchmarking and resource management skills, and may even learn to lose (or win) gracefully.

So here is the question: When is the application of game lessons to life not useful?

And the answer: When we confidently internalize strategies from a game that don’t apply in the complex real world.

The Ludic Fallacy | Income Outcome

Sadly, misapplying overly simplistic lessons to the complexities of real life seems to be an all-too-human behavior. In the field of business simulations it is made all-too-easy by some all-too-common design flaws.

Life is complex, and the unknown unknowns are precisely the things that have the most significant impact on a business. They are the disruptive technologies, disgruntled employees, dramatic changes in financial regulations, etc. that really rock the boats of business.

In The Black Swan: The Impact of the Highly Improbable, Nassim Nicholas Taleb discusses this phenomenon, and introduces two key concepts:

Black Swans: outliers that carry extreme impact and are entirely unexpected

The Ludic Fallacy: inappropriate use of simplistic game lessons within complex realities

I think it’s worth not only reading his book, but also analyzing your choice of business simulations. Do it incorporate Black Swans? Is it priming users to commit the Ludic Fallacy?

I have facilitated the Game of Income|Outcome business simulation for 18 years, and rarely see the same strategies generate the same results. Ways to “lose” the game are consistent and predictable (and applicable to the real world), but the ways to win vary from session to session.

Winning is based entirely on effective implementation of the strategic choices available and recognition of and adaptation to changes in the competitive landscape that result from competitor decisions. The game models disruptive technologies, and has an element of open decision-making that allows teams to make the spectacularly clever (or horrific) decisions that act as Black Swan events. Teams that can react and adapt survive, and teams that don’t…don’t. If participants are predisposed to believe in rational marketplaces and simplistic models, they quickly learn that game reality (as Reality itself) often has a different story.

The Ludic Fallacy | Income Outcome

Considering what you don’t know to be of more potential consequence than anything you do know is a valuable skill—one that is hard-learned in business. Income|Outcome encourages the realization that there must be an ever-present awareness of the unknown unknowns. Since we are unable to truly plan for these events, the best we can do is become agile in learning to adjust to their occurrence. A good business acumen foundation can build the resilience to deal with Black Swan events—and can even immunize against the Ludic fallacy!

A good business simulation:

  • Shows how business decisions result in financial impacts (Income Statement, Balance Sheet, Cash Flow)
  • Demonstrates how the parts of a business work together
  • Proves that financial realities enable, limit, prevent or force strategic moves within a company, competitor or customer (and that these can be known!)
  • Stresses that internal information flow can enable (or disable) organizational success
  • Is built at the right level of abstraction for modeling a business and industry/marketplace (the 50,000 foot view—not 49,000 or 51,000!)
  • Contains open decision-making with no predictable “way-to-win”
  • Drives home the truth that unknown unknowns can not be predicted, but must be expected—and will be best weathered by the most resilient organizations.

Conclusion:

Exploring the concepts of the “Black Swan” and the “Ludic Fallacy” can increase your maturity as an entrepreneur, readying you to respond to the inevitable curveballs that can make or break your business. These principles also help you make informed decisions when you are choosing business acumen training resources for your organization.

Income|Outcome provides a complex and comprehensive business simulation experience. An open decision-making format is the foundation of the game, which allows “Black Swan” scenarios to arise, testing participants’ abilities to analyze unexpected situations and react accordingly.


Interested in learning more about how the game play works? Check out this article: A Step-by-Step Description of the Income|Outcome Business Simulation