WonderTour

hello and welcome back to Lead Wisely by WonderTour We are continuing our series on game
theory this week we are talking about possibly the purest expression of game theory in

hello and welcome back to Lead Wisely by WonderTour We are continuing our series on game
theory this week we are talking about possibly the purest expression of game theory in

popular media, the movie Moneyball with Brad Pitt talking about the 2000s era Oakland
Athletics baseball team and the Saber Metrics revolution.

We love metrics.

The Saber Metrics revolution that led to a quite different way of thinking about

how you pick players and how you construct teams in baseball.

So I'm gonna start right off with a tough question for Drew here, which is the question
facing our protagonist Billy Beane at the beginning of the movie.

Drew, how do you compete in an unfair game when the odds are tilted against you?

Thanks, Brian.

Well, let's start out with how we start out most things here on Wonder Tour.

We got to define the problem.

And in Moneyball, you get this great scene where we have Billy Beane, Brad Pitt's
character, and he walks in at the beginning and he's talking to the coaches and the scouts

on the A's and he's asking them, what is the problem?

each one of them is trying to answer the question a little bit differently.

like, we got to replace Giambi's production from last year since he went to the Yankees.

You know, we got to get X amount of home runs and RBI is and all of this in order to
continue to compete.

And he just keeps pressuring them.

What is the problem actually?

And so that has to be the starting point, right?

And like we talked about, what is the problem?

And the problem in that situation is that their payroll is going to be what, like a third
of what the Yankees payroll is going to be.

And yet they have to figure out how to feel the competitive roster.

So.

Whenever it's an unfair game, mean, the clear statement of the problem is critical because
oftentimes I've seen in unfair games, kind of as they play out in reality, people get

frustrated and as a result, they get a cloudy version of the problem in front of them.

We all do it, right?

It's just, well, the problem is the system's unfair.

The problem is blah, blah, blah.

It's like, okay, yeah, but what about the system is unfair?

Cause that's going to lead us to step two, which is to understand what is the bias and the
efficiency of the system.

And that's what we see as Billy Beane.

meets Pete, Pete's character kind of illuminates for Billy what the actual efficiency of
the system is.

meets Pete, Pete's character kind of illuminates for Billy what the actual efficiency of
the system is.

He's like the system biases towards big hits and players that look great because they sell
tickets, they sell TV contracts, right?

But for us, we have to potentially look at what other avenues we have.

So what actually matters in this situation?

And that's where you can look at predicting a different target variable.

In fact, companies have been doing this for the past handful of decades at this point,
evolving the target variable that they're looking at.

used to always be about just revenue and profitability.

But then we sent it towards with Amazon, like, no, it's more about revenue and it's more
about customer equity and retention and all of these things, right?

It's about the customer experience and everybody's kind of taken that and we've continued
to evolve that concept.

I think you have to be looking at the overall system, what it biases towards and what
efficiency is in the system.

Because in this situation, Pete found an efficiency that something that matters maybe the
most is going to just be on base percentage guys who can get on base.

They can get in a position where they could score.

So how do we take advantage of that?

If there are guys who can get on base, but don't cost as much in the market.

And I think this could be applied as we talk through the rest of our episode, Brian, in a
number of different contexts.

It's not always going to be so exploitable as it is in the premiere movie where we find
out about how metrics changed baseball, but there are edges to be exploited if we can have

a clear definition of the problem and then try and understand through data what actually
contributes to a good outcome.

a clear definition of the problem and then try and understand through data what actually
contributes to a good outcome.

and where is the efficiency at in terms of my spend or in terms of my energy or time
investment.

Right.

Yeah, no.

And again, this is a, we're in our game theory series.

And so we're looking for these angles.

We're looking for these edges.

We was looking for these things.

The thing that I love about this is the way it contextualizes it, right?

Is right up front.

He's like, okay, the problem is it's an unfair game.

Like recognizing that you're at a disadvantage is really powerful.

Like it's not just that other people are working harder than we are, or they're smarter
than we are or whatever.

It's like, oh no, there's a structural disadvantage here.

The Yankees have $120 million and I have $37 million.

This is a problem.

but then to go from that, not to, well, I guess we're just toast.

I guess this isn't going to work.

Right.

We get to go from that to, so we cannot play the same exact game.

We have to play the same game on the field, but we can't play the same game in recruiting
and building a team because it's just not going to work.

We just can't hire the, you know, we can't go out and spend money on the player that
everybody agrees is awesome.

Billy Beane first ability, you know, the first thing that he does is just like, Oh yeah,
this is unfair.

So I got to do something different.

I'm desperate.

I'm going to try something else.

So he's open to these new ideas, right?

what can I do that they're not doing?

What can I do that the Yankees aren't going to, it's never going to occur to them to do
because they have 120 million dollars.

They can just get whatever player they want.

They're not going to think about players in this nuanced way, right?

They're going to go big.

So how do we go at a different angle?

It's a really cool, you know, it's a really cool challenge for all of us to look at
situations where we might feel like our business, our organization, our opportunity is at

a disadvantage.

Okay.

What can we do that isn't playing the same game that the people with the existing
resources are playing?

Yeah, that is, it's crucial once you figure out what the efficiency of the market is to
like you said, Brian, now I need to figure out what is the output variable or the outcome

that I'm trying to achieve.

What are the traditional inputs that people think about when it comes to achieving that
outcome?

And what are potentially some inputs that maybe the big dogs aren't looking at or my
competitors aren't looking at?

us.

What if I could prove through statistics or through trials or whatever that these inputs
are actually significant and that somebody's missing a significant input in the process.

Now there's a potential advantage.

There's a market efficiency you can take advantage of.

And I think going forward in this episode, we'll talk about gathering of the information,
how to leverage that information, how to, yeah.

you.

Yes, yes.

But first, let's do the intro.

Hi, I'm Brian Nutwell.

And we are on a journey to lead wisely, to become better leaders by touring fantastic
worlds and inspiring lore in the occasional sports parable by going on a wonder tour.

We connect leadership concepts to story context because it sticks to our brains better.

You can find out more at wondertourpodcast.com.

Yeah.

So one of the, one of the reasons that this kind of movie is fun for us, right.

Is because it's more clearly applied to everyday life.

Like I'm not in a position of spending $40 million on baseball players, but the problems
that Billy Beane is facing as a mid to high level manager of a struggling organization are

more like the business challenges that we talk about than the, you know, the I'm going to
wipe out the world zombies and monsters and jumping motorcycles off into helicopters

problems that we see in some of our bigger media budget properties.

Right.

So.

So I like it in that respect.

And I also like that the things that Billy Beane encounters in the course of this movie,
in the course of trying to apply his radical new game theories are, these are real things

that we all see in organizational change management.

Anytime you try to get a group of people to do something in a new way, right?

When you're going for this, we have an opportunity that nobody else sees.

Kind of by definition, one way to say is like, I have an insight that nobody else does.

Another way to look at it is everyone else has a blind spot that I have uncovered.

It's like, I'm going to take advantage of the fact that nobody else looks at the world in
this way.

The problem with doing that as a leader is that it's almost certain that all of the people
in your organization also don't look at the world that way.

And so they all have the same blind spot and they all have the same, you know, resistance
to changing the way they're doing things.

Even if it's not going well, we joke, we say half jokingly on Wonder Tour a lot, Middle
management are the white blood cells of the organization.

Their job is to reject change.

Like it's not, it's not a bug.

They're not doing it wrong.

Like that's actually what they're there for.

There are people that were succeeded and they were promoted to some level of authority
because they've demonstrated that they can keep the wheels turning.

But when the whole organization isn't succeeding, when you are almost about to win the
World Series, but you can't quite get over the hump because you just don't have the

slogans and then all of your best players get cleaned out and you're totally toast, right?

When you're in that situation, like, let's just do the same thing we did last year again,
only less well is not the strategy.

But people in the middle don't ever see it that way.

Like my whole life is defined by doing this specific job in this specific way really well.

And I want to keep doing that.

And the scene with the Scouts is exactly that.

it's fabulous.

Like all these ridiculous ways of value.

Well, he's got a really good job.

Oh yeah.

No, he's probably not a good player.

His girlfriend's not attractive.

And so, you he doesn't have any confidence, like ridiculous, ridiculous ways of thinking
about things, but they've been doing it forever.

And it works to some level, like it got into the world series.

So they don't want to change.

So what do you, yeah.

So.

situation we have to figure out what can we do as leaders in order to get people to change
their mind, right?

And in this first episode, we're going to talk a lot more about the data and the game
theory.

How do we do that?

There's opportunities where we can leverage ways of thinking, ways of understanding
numbers in order to kind of swing outcomes.

Right.

So this is where maybe we have a little bit more control, but you still have to be
pragmatic about it.

You still have to realize if we're proposing this new way, you know, on average, I
forecast that we'll achieve a higher level of profitability.

It's like, well, it doesn't necessarily always work out that way.

You actually still have to take and make changes.

You still have to take risks, place bets, do things in a coherent way.

that is aligned with a strategy in order to get that all to work out.

And that's what we see here with Billy Beane At first, he buys into the theory from Pete
and his idea is just like, yeah, if we just do this, then it'll work, right?

Like this new thing, it's great.

And the math, maths.

So we should do it.

And I've definitely been a part of things like this before, Brian, where it's like the
math, maths, and we should just do it.

And so we go and build a machine learning model that does it.

And, crap.

It doesn't actually work within the current organization.

Like we needed at some point earlier on, ideally to change the strategy.

We needed to influence people in a certain way to change the way that they're thinking and
operating before we just brought them this new math and said this was a solution for them.

Right.

Yeah.

No, that's a good way to, that's a good way to say it is that you,

You have these wonderful techniques at a game theory, right?

You have this like, you were talking in the pre-show, like the asymmetric upside.

You have the idea that I can do something where like the way I'm looking at the world, I
see this benefit that nobody else sees.

And my risk is much lower than my potential benefit, right?

And if I play enough of those non-obvious moves, then I start to accumulate, you know, in
this case, I have more chances of people getting on base, which at the end of the day is

what I want in baseball.

So this asymmetric upside is something you're looking for.

The other term we talked about was arbitrage, right?

Like the idea that people are undervaluing assets and so you can, you know, where they're
misvaluing assets.

And so you can get more than you should for something that you already have and you can
pay less than you should for something that you want.

Right, right.

is an example of those two things basically being combined.

And it's a fun moment.

It's one of the more fun moments in the movie.

on Wander Tour, the mountaintop moment is where we can kind of see the theme playing out
in the individual moment and learn a lesson.

And the moment here has got to be the trade for Rincon.

who is a relief pitcher that they really want to finish out the season as I recall.

Yeah.

I'm assuming it doesn't say that, I'm guessing they need a closer and Rincon is the
closer.

I vaguely remember Rincon as I do with most of these players.

Yeah.

Yeah.

And so, yeah.

So the setup, I'll set it up and you can bring us in here.

The, the setup of this is, Billy Beane and Pete, his statistics advisor in a room together
with multiple telephones, right?

And they have a goal.

They want to get this player traded from another team and they have a couple of assets
that they could willing to shuffle around on their own team.

But the one, the other team is, is balking.

You're like, I've got somebody else that I think is going to give me a better offer.

Right.

So you've got like.

The traditional way to solve this problem is to escalate.

Well, I'll give you more money.

Okay, well, I'll give you these three players.

I'll give you these two players plus a bigger pile of money, right?

But that's not what Billy Beane does.

So what does he do here?

in this situation, he realizes an opportunity to capitalize on asymmetric upside of
getting ring cone.

So basically, if you think about it this way, there's two sides to any curve, right?

There's like a downside end of the curve where at the far end, generally it's less likely,
but the downside is pretty significant.

And there's an upside end of the curve where it's less likely, but the upside is pretty
significant.

And the assumption is that everything is a normal distribution and that it's always kind
of fair on either end, depending on how far out you want to take a risk.

That's how much benefit that you'll get.

What we see here is the opportunity to play arbitrage on both ends of the curve.

So what happens is Billy Beane has this opportunity.

He's told us since the beginning of the movie, he wants Rincon.

He tried, he already went to the Cleveland team and tried to get Rincon in like the second
scene in the movie.

Right.

This time he calls them and he makes an offer for him and it's a pretty fair offer.

But Cleveland's like, well, actually, you know, we have another suitor and I don't even
remember who the other suitor is, but they have another suitor and the response that Beane

has is brilliant because he's like, well, he's a Rincon on our team given our situation.

This is really important for us.

We could potentially stand to benefit a lot from him.

if things work out really well.

the flip side though, now he has information.

He has information that this other team is also looking for a relief pitcher.

And so he is like, well, if we're getting ringed cone, then we could just get rid of a
mediocre relief pitcher that we have and we could get rid of him really, really cheap.

And so he flips it and he calls the other team and he's like, well.

I hear you're in the market and you know, we have a guy that we just got to get rid of and
they can't even hardly believe it.

They're like, why would you just want to get rid of him?

And so to this other team, he's giving them a low end outcome bet basically, right?

Like it might be middle of the curve actually, but it's probably a middle of the curve
bet, right?

Decent reward, decent investment.

it's, yeah, it's a low risk thing.

Great.

Sign me up.

Exactly.

He sells them on the low risk, but the problem with the low risk is it's not a very
efficient bet because you're not necessarily going to get much out of it.

What do you get if you win is the classic question when you're talking about asymmetric
upside and the opposite on the opposite side.

What do you get if you win?

If you get rain cone, who ends up being a great closer and lead you into the playoffs is
huge.

And so he's willing to play this game where he sacrifices an asset that he has.

And he takes a beating on it basically, like when he sells it, he's like, all right, you
know, I'll take a loss on this.

and on the other side, he even pays a premium right out of his own pocket.

has to pay 250 K in order to bring in Rincon.

But he's making a bet.

He's saying if this team that we have is in fact good, which I think it is, it has a
chance to play into the playoffs.

We need somebody who can close these games out in a way that we don't currently have.

And if that guy is good, then not only can I play him this season,

But I'm actually going to make a deal with the owner that I can sell him next season and
I'll take a profit on his contract because I'm the one paying the 250K.

So yeah, so it's wonderful.

Like it's a fun scene to watch, right?

But it's all asymmetric information.

Like he's working the phones with like three different parties and none of them sees the
full picture except him.

And so he's able to sort of manipulate them into doing the thing that he wants, which is
like, you're going to take this player.

So you don't need this picture anymore.

So you're not going to ask him for anything.

So you're going to be willing to sell to me at a lower price.

I'm going to get the money from this other place.

And yeah, it's really.

It's very skillfully played and it's all telephone.

Like there's no human, other humans in the room.

He's not talking to any of these players.

He's not, you know, it's, it's just, it's just moving the chess pieces around on the
board, but it's done with this game theory mindset where he's looking at the world in a

different way.

He's looking at his strategy in a different way.

And he's not just trying to win one trade at a time.

He's trying to win the whole arrangement of pieces on the board.

Exactly.

And that is the key.

So that's where this is different than Pete just modeling out, basically running a
simulation for how many runs they're going to score depending on what their on base

percentages, blah, blah, blah.

This is different because he's actually taking a loss on potentially both of these trades
that he's making.

Definitely taking a loss on selling the guy cheap, potentially taking a loss on taking a
higher risk investment into ring cone, which could pay off or could not.

But that, you said, Brian, that's the key.

There's an intrinsic benefit.

And this is a much, much more applicable thing to our daily lives and our businesses.

Because like we said, you don't always end up being the company that comes up with Saber
Metrics and changes the world, but you do know your own strategy.

You know the context of your own business.

We know that better than anybody else knows that.

And so we can take advantage of intrinsic benefits.

In this situation, we're defining intrinsic benefit as the ability to gain additional
outcome, basically, whatever you want to quantify the outcome as, win percentage,

whatever, right, through the overall, you know, through the strategy, not just through an
individual transaction.

So he makes a good deal with Cleveland.

He makes a good deal with the other team for both of those teams.

But the A's actually win because

Between the two of them, it pushes them further towards the completion of or fulfillment
of their strategy in a way that each of the individual moves would not have.

Right, and I think that's really where we need to land this, right?

Is that in the unfair game, like the first step is recognizing that it's unfair.

The second step is taking a different approach to that everybody else has, like unlocking
some blind spot, unlocking some unique insight that you have.

But then what you just said is super important is that one, one step at a time, one move
at a time, one advantage of the time is never going to add up to like winning the world

series.

Right.

It has to be a coherent picture of like the whole organization is designed and executed
top down.

to attack that strategy, to take advantage of those asymmetries.

And you have to keep that picture in mind every time you're making a move, you have to
keep that picture in mind with your management techniques.

And that's very different.

That's where you go from game theory to game practice.

Right.

And so I think what we're going to talk about next in our next episode is going to be what
are Billy Beane leadership superpowers?

What are the techniques that he uses to actually take that theory and put it into
practice?

Like, how do you get this done on the ground?

And how is that different than just the theory?

Yeah, and I actually just want to bring in a kind of flip side example of this here for
the practical application real quick, because I think this one makes the most sense.

Yeah, and I actually just want to bring in a kind of flip side example of this here for
the practical application real quick, because I think this one makes the most sense.

Recently, in our current time in twenty twenty five, the Denver Nuggets with like ten days
left in the NBA season, which is unprecedented.

They fired their head coach.

and announced that their general manager would not be renewed, which is pretty crazy.

This is totally unprecedented, especially for a playoff team that has the best player in
the world, Nikola Jokic on the team.

It's insane, right?

But the problem is they were, the strategy was not coherent.

The transactions, while each individual transaction may have been efficient in a way that
the GM was making, while the way that the coach was coaching the team may have been

efficient in a way.

they were not working well together.

What you ended up with was a coach in Michael Malone who was trying to build a team that
was complimentary to Nikola Jokic.

That was it.

I'm just going to build a team to build around the greatest player the world has ever seen
basically.

He's a huge dude who can't, gets a triple double every single night, right?

The world doesn't usually see a center who can play defense is the best offensive player
in the league and

this is insane from a numbers perspective, but he has the greatest disparity on record
between his on off plus minus, meaning when he is on the court, the team is the best

offense in the league.

When he is off the court, the team is basically the worst offense in the league.

is unbelievable.

Yes.

So I guess they've done a good job.

They have built the team around him because it doesn't work when he's not there.

Yeah, but the problem is that the GM wanted to play this five, 10 year approach where, you
know, I don't want to get into the NBA salary cap, but they're under the second apron,

meaning they're not willing to pay money despite the fact that they're not a small market
team.

They're not willing to pay money in order to expand the salary cap.

They're not putting the right complimentary players in place around Jokic.

Instead, he's trying to build with these young guys that are going to take years to build.

And they have some young guys with promise, but they're not here.

And Jokic is in his prime.

What are you doing?

And so in the end, gets both of them fired.

And this is like the bad example of what could have happened with Billy Beane and the, and
the manager art in Moneyball.

if you don't connect the dots, if you don't make everything consistent with your strategy,
then even the best pieces in the world won't necessarily get you to where you want to be.

So.

indexed on this trade or this free agent that we're signing or whatever.

we got a great deal on it.

Yeah, but it's not moving you in the right direction as an organization.

You're actually getting worse.

Awesome.

Terrible, but awesome.

All right, cool.

I think that's it for this episode.

We've talked lot about game theory.

We've got Billy being in a position where he could potentially win a whole bunch of games.

He's done a really good job assembling the team.

Now let's talk about next episode, his leadership techniques that actually land the deal.

next week, Moneyball Part 2.

Thanks for joining us on this journey to become better leaders, to lead wisely.

And we hope you'll come back next week.

In the meantime, just remember.

As always, character is destiny.