Chess and Decision Making

The World Chess Championship is underway, and the current champion – the Indian Viswanathan Anand – is trailing his young rival Magnus Carlsen by three to five. In the opinion of many, Carlsen is set fair to become the strongest ever human player.

The match is an absorbing spectacle, but the game of chess is not just interesting in its own right. It tells us a great deal about the nature of the environment in which individuals and firms make decisions, and how these decisions are actually made. Herbert Simon, possibly the greatest social scientist of the second half of the twentieth century, used chess to illustrate his key ideas about decision making.

Simon won the Nobel Prize in economics. He also received the Turing Award for his contributions to artificial intelligence, and the American Psychological Association conferred on him an prize for his Outstanding Lifetime Contributions to Psychology. His day job, as it were, was as professor of industrial management at Carnegie Mellon.

Simon believed that the way in which economists assume people take decisions was profoundly wrong. A Rational Economic Person gathers large amounts of information on the alternative choices available in any particular situation, compares them to his or her preferences, and then makes the best possible decision – the “optimal”, as economists say. But Simon argued that, in most situations, the environment is so complex that the optimal decision can never be known. Instead, we use what he called “rules of thumb”: simple rules which give reasonably satisfactory outcomes – until they do not.

This is not merely of academic interest. The economic models in both finance ministries and central banks are based on the concept of rational decision making. A great deal of regulation is designed to correct so-called deviations from “rational” behaviour, both by consumers and firms. How does this relate to chess?

The game of chess is in principle very simple. There are about a dozen rules, which can be learned easily. The object of the game is unequivocal, to capture the opponent’s King. And you know everything your opponent has done. But in most situations in the game, the optimal move cannot be computed. Many bad options can be eliminated, and players like Carlsen will do this much more effectively than an average player. Even at world championship level, this is how most games are lost and won. It is not often a matter of superior rational calculation of the consequences of a move. It is the judgment about what constitutes a good move.

Do computers help? In chess, all possible positions with six pieces have now been solved. But there are 32 pieces, and the computational complexity scales super-exponentially with the addition of each piece.

The environment in which firms operate is also enormously more complicated than the game of chess. Competitors, for example, can innovate and invent entirely new pieces and new rules. We live in a radically uncertain world in which, as John Maynard Keynes once remarked, “we have, as a rule, only the vaguest idea of any but the most direct consequences of our acts.”

Paul Ormerod

As published in City Am on Thursday 21st November

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Alex O’Byrne, Associate at Volterra, is an experienced economic consultant specialising in economic, health and social impact, economic strategy, project appraisal and socio-economic planning matters.

Alex has led the socio-economic and health assessments of some of the most high profile developments across the UK, including Battersea Power Station, Olympia London, London Resort, MSG Sphere and Westfield. He has significant experience inputting to EIAs and s106 discussions as well as drafting economic statements, employment and skills strategies and affordable workspace strategies.

Alex is also experienced at economic appraisal for infrastructure. He was project manager of the economic appraisal for the City Centre to Mangere Light Rail in Auckland. He also led the economic and financial appraisals of the third tranche of the Transport Access Program for Transport for New South Wales, in which Alex developed and employed innovative methodological approaches to better capture benefits for individuals with reduced mobility.

He is interested in the limitations of current appraisal methodologies and ways of improving economic and health analysis to ensure it is accessible to as many people as possible. To this end, Alex recognises the importance of transparent and simple to understand analysis and ensuring all work is supported by a robust narrative.

Alex holds a BSc (Hons) in Economics from the University of Manchester and he was a member of the first cohort of the Mayor’s Infrastructure Young Professionals Panel.


Senior Partner

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Ellie is a partner at Volterra, specialising in the economic impact of developments and proposals, and manages many of the company’s projects on economic impact, regeneration, transport and development.

With thirteen years experience at Volterra delivering high quality projects to clients across the public and private sector, Ellie has expertise in developing methods of estimating economic impact where complex issues exist with regards to deadweight, displacement and additionality.

Ellie has significant experience in estimating the economic impact across all types of property development including residential, leisure, office and mixed use schemes.

Project management of recent high profile schemes include the luxury hotel London Peninsula, Battersea Power Station and the Nova scheme at London Victoria. Ellie has also led studies across the country estimating the economic and regeneration impact of proposed transport investments, including studies on HS2 and Crossrail.

Ellie holds a degree in Mathematics and Economics from the University of Cambridge.