Game Theory for Auto Repair Shops: Pricing, Competition, and Strategy [E238]
Diagnosing the Aftermarket A to Z
Game Theory for Auto Repair Shops: Pricing, Competition, and Strategy [E238]
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Concept
prisoner's dilemma
It’s a “two people, two choices” thought experiment. Each person can either cooperate or betray, and the tricky part is you don’t know what the other person will do—so the best overall outcome isn’t always what people choose.
Concept
game theory
Game theory is the study of strategic decision-making when outcomes depend on the choices of multiple parties. It’s often used to model situations like competition, negotiation, and cooperation/defection patterns over repeated interactions.
Concept
Nash equilibrium
Nash equilibrium is a “stable standoff” in a game. If everyone is making the best choice given what the others are doing, then changing your choice by yourself won’t make you better off.
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I've decided to do it. I've kind of talked some smack about doing it.
And by smack I mean hinted at it.
Maybe more accurately lamented.
But I've decided I have to start talking about it so I can keep building on it.
And it's something I find extraordinarily interesting as well as I think very useful.
That's game theory.
Understand game theory doesn't mean only, or really at all, just like the study of board games.
I'll just prove that a little bit and somewhat contradict in a few minutes.
But in general, that's not what it is.
It's kind of extraordinary to be honest.
And I don't know, maybe it's just me, but I like knowing how things work and how they came to be.
Like, it's interesting to me and useful to know that voltage divided by current would tell us the resistance.
Or a combination of that, right?
OEM's law.
I get that.
It's very useful.
It's cool to me to know how it was discovered.
Who came up with it?
How did they come up with it?
And of course that sends me down rabbit holes.
Game theory is somewhat similar.
Many of you, if you've ever heard of game theory outside of me mentioning it here and there,
maybe bringing up a concept here and there.
Really, if you've heard about it, I can think of maybe three primary sources.
Two of them are movies.
One is the movie A Beautiful Mind, which is kind of the story of a mathematician named John Nash,
who came up with the Nash equilibrium, which we might be able to talk about a little bit.
Not that important.
The other movie is 21.
Kind of movie about a, I think it was an MIT group of mathematicians, specifically,
that took a lot of casinos around the country for a lot of money using mathematics against the casino.
And just certain strategies based, stemmed in game theory.
The other would be a gentleman by the name of Simon Sinek.
He will very often talk about game theory.
If he doesn't talk about it specifically, he will talk about a couple of aspects or concepts, I guess, of game theory.
I guess we'll just start with the beginning.
And I'm not necessarily looking to turn this into some big history lesson.
That's not my point, but it is kind of cool, at least in my mind.
And maybe that's broken.
Need to have a movie about me called A Broken Mind.
Anyways, there's a gentleman by the name of John Van Newman, and we're talking back in the 19 teens and 20s,
who is a avid poker player.
Now, certain stories have him painted as being bad at it.
He's not a good poker player.
I don't know that that's actually true, and I don't want to say he was really good at it.
But because a deck of cards only has so many combinations,
he felt like there should be a way to devise a strategy that is mathematically difficult to beat over time.
Over the long term, you would consistently win more and more.
If you listen to episodes with me and Richard Falco, we talk a little bit about that,
where we talk about game theory optimum, specifically for poker.
He starts delving into it, but those of you that have played poker or watched poker
or just have some interest in it know that there's more to it than the cards.
There's a lot more. There's bluffing.
And you don't really know what everybody has.
Now, don't get me wrong.
Like, in certain cases, depending on betting strategies or behaviors or tells,
you might be able to figure out what they have.
And in some cases, with terrific accuracy, watch some videos with Daniel Nagrano.
It's borderline like telepathy, how accurate he can be at the professional level against other professionals,
telling them what their hands are.
I kid you not, I think there is an episode, I want to say poker after dark where he and it's,
I think Sammy Farhal was the guy who lost to Chris Moneymaker back in the World Series of poker
that basically caused what we would recognize, I guess, or what is really known as a poker explosion.
Sammy Farhal lost to him, but it doesn't matter.
In this case, there's a episode of poker after dark where I think two hands in a row,
Daniel Nagrano predicts, if I remember right, I think it was exact.
He said exactly what cards Sammy Farhal had in his hand.
Two cards, right? They're playing Texas Hold'em, right? No limit, Texas Hold'em.
Two cards down, face down, nobody could see him.
And Daniel figured out what he had.
It's fine, boy.
Okay, so that's part of the game of poker is bluffing.
You can develop a table presence, if you will, or a table personality that if you always play tight,
players are going to respond a certain way.
If you always play loose, players are going to respond a certain way.
And it turns out Von Neumann studied this, studied like the cards and the numbers and the bluffing part
and came up with really a book, wrote a book about it.
There needs to be strategic bluffing.
You should bluff on purpose, even randomly for oddly enough to keep the other players honest,
for lack of a better term.
There's probably a better term, but I think that's how you would say that.
Keep everybody honest.
You need to bluff even if it's really random and it's not the best time or place to do it.
You have to be able to demonstrate that you can do these things, that you will take chances in that.
Maybe some of the hands you won, you didn't have it.
That's a big deal.
Okay, it's fascinating, right?
So this book gets published.
It's not like a bestseller or anything.
I don't want to imply that.
It doesn't turn the math community on its side, but it's not unknown.
Fast forward a few years.
Not a terrific amount of time, but a few years.
There's another gentleman.
His last name is like Morgan Stern.
I think his first name is Oscar, but I could be wrong.
I want to name the names not to be so much a historian.
I'd like to give credit where credit's due, right?
That's what I want to do.
It's not trying to put on a history lesson and rattle off these names.
I don't even want to give you the wrong idea like that.
This is just such a passion of mine.
I do find it extraordinarily interesting and I do find how things become what they are or how the origin stories.
My favorite superhero movies have origin stories.
That's what I like.
Maybe it's because the first Superman with Christopher Reeve had the origin story and I like that.
And that's how I base every other comic book movie or most other movies.
Like, I really like John Wick.
I would love to see an origin story.
For the life of me cannot believe that with the way video gaming is now,
somebody hasn't written a game completely open world that is essentially the prequel to John Wick.
Let's see John Wick become John Wick.
Let's see Baba Yaga, the birth of Baba Yaga.
Let's see the impossible task.
Like, maybe that's one of the things with the game is you have to complete the impossible task.
That would be freaking awesome.
That's what I would really like.
I do like the movie.
Don't get me wrong.
Trash in the movie, but it would have been better if we had an origin story.
We get to see why he gets mad and comes back.
Anyways, not to go off the rails too bad.
But Morgan Stern is, he's a mathematician in economics, economic theory.
And the issue is economic theory at the time was everyone behaves or you should be able to predict everything.
Based off everyone doing the right thing or everyone making the most logical choice,
everyone doing what's best for themselves or the group.
But that isn't how it is.
We all know that and they just had no mathematical model for that.
So if I remember right, he's going to Princeton and an instructor of his or a professor, I guess,
turns them on to this book by Von Neumann.
It inspires him.
Like, here it is.
Oh my gosh, turns out for the craziest stuff.
Like, I don't know if they end up together.
There's no way to beat around the bush.
Okay, I'm sorry.
I'm not justifying anything.
I'm not saying anything's good or anyone's good in this case, but this just is what it is.
They meet because of Hitler and not because Hitler hooked them up because of Nazi Germany and where these gentlemen are from.
They're in the USA at Princeton and they stay because of what's going on.
They get a chance to meet and all by the way, because of networking, they weren't sitting at home.
I guess, I mean, honestly, we network on the Internet, so I can't beg on the Internet too bad.
But let's be real, because they're out and about and they're meeting people, shaking hands, having tea or adult beverages amongst each other.
And I'm not just trying to say adult beverages are the way to go.
Just getting out there and meeting people and hanging out with them and talking about ideas is a very, very important thing.
Network, network, network.
They meet each other.
They also meet somebody else.
I'm going to say his name and unfortunately, I don't think many will know who he is.
It kind of sucks because many of the very baseline or fundamental theories of quantum mechanics are because of this gentleman, Niels Bohr.
He's not an economist.
He's not a game theorist.
He's a mathematician.
He's a physicist.
Most of us are taught how an atom looks.
If I asked you to draw me an atom, A-T-O-M, an atom, you would probably draw me a nucleus with a couple of spheres squashed together.
However many, it'll be lumpy with spheres.
And then you would draw me probably a solar system looking thing with electrons.
That is the Bohr model.
It's wrong.
It's been wrong for a long time.
I guess it's been wrong since he came up with it because it's just plain wrong.
But it was the first real model that explained energy states, if you will, shells.
So it worked for quite a while.
It explained energy levels for electrons and how absorbing a photon would cause an electron to leap up one or more energy levels or shells.
And then when it would lose that energy, if you will, it would emit a photon and drop energy levels.
That model explained that early on.
It's not right with what we, the current concept, if you will, of quantum mechanics, but that's not important.
The important part is those three are sitting at a table sipping tea talking about the mathematics of games.
And now we have to change the definition of games.
Games isn't just poker.
Games isn't just chess.
Games isn't just playing a game.
Games are interactions.
Every interaction.
So you have games with everybody, right?
Everybody you work with, your boss, the day to day business, clients, it's a game.
There's different games going on at any one time.
That's the definition of a game now, especially when we're talking about game theory.
We're talking about interactions where things are given and gained and put out, put stuff like that.
I guess we have to split a little bit.
We have two real distinct games and like I'm trying to simplify this.
I don't want to oversimplify it.
I don't want to make it overly complex either because I don't want to sound like I really know it.
I want to pull this through and through.
But I think I have a pretty good grasp of the concept of what's going on.
So out of these games, we have really two distinct directions.
One is a game of perfect information and the other one is a game of imperfect information.
The poker is a game of imperfect information.
You cannot see what they have.
You don't know what cards they have and you don't know if they're telling the truth.
Imperfect.
Perfect information would be something like chess.
I can see where all the pieces are.
I may not know what my opponent is thinking, but I can see every conceivable move.
It doesn't mean I will see it, but I could see it.
I might see it.
If I'm really, really, really good, I probably do see it.
And I probably don't even just see one move ahead.
Depending on what level I am at it, I might see four moves ahead.
I might see 12 moves ahead.
I think most grandmasters, if I remember right, most grandmasters in chess typically see 12 or more moves ahead.
Certain players, like the very, very best, like Magnus Carlsen, probably sees an excess of 20 moves ahead.
It's absurd.
And you still can't beat some of the lowest level chess engines anymore.
Computer programs.
Side note.
Sorry.
Or tangent.
Big surprise.
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So we have these two distinct games, perfect information and perfect information.
And these three are sitting around talking about that. That's cool as all get out.
Why bring this up?
And honestly, I think it's because we never talk about it.
It's never really taught to us.
This was born in like the late nineteen teens or early twenties.
It's not new. It's evolved, right?
We get things like the prisoner's dilemma. It's a thought experiment.
That's very much game theory.
We get the Bonnie Hall problem, right?
Which is kind of a statistics thing, but it's a game, right?
It's the Bonnie Hall, I think popularized in the movie 21.
I think that's when they pick what's his name about, you know, you get three doors and behind two doors are goats.
And behind one door is a new car or a 100000 dollars or some big reward, right?
And you, the contestant, are asked to choose a door just randomly.
OK, you pick a door.
One of the other two doors then what happens is the game show host will reveal what's behind one of the other doors.
And it's going to be the goat, right?
There's two goats.
You're going to whatever door you choose, they're going to show you the door with a goat.
You are now given the opportunity to either stay with your choice or select, change your answer, select the other door.
Some people would feel that's a very random thing, like your choice of selecting the right door is a random thing.
And OK, that first choice is right.
You have a one in three shot, but now they take away one of the doors.
Your odds actually improve by selecting the other door.
You could argue because now you went from 33 percent to 50 percent, but it's not quite that easy.
Statistically, you're better off selecting the other door.
That's known as the money hall problem or the money hall experiment.
And I think money hall was a game show host.
And I think I hate to say because I'm probably wrong, but I thought the game show was like let's make a deal or something like that.
It could be way off.
You can hammer me in the comments about that.
I deserve it.
There's another problem thought experiment in game theory called the prisoner's dilemma.
It's important concept or an important thought experiment to wrap your head around because it can show you how two very rational individuals
can still end up making decisions that are, well, they end up worse off than they could have been if they would have, in this case, trusted one another or cooperated.
They're two important terms in game theory, specifically when we're talking about the prisoner's dilemma as cooperate or defect.
A little bit of a side note.
I know I'm terrible about these, but game theory also is split into not just perfect information and perfect information,
but also cooperative and uncooperative.
They don't call it defective.
That would be hilarious, but they don't.
Basically, one non-cooperative is usually associated with zero sum games where there's one winner and one or more losers.
And a lot of times the gain of one is a result in a proportionate loss to the other or others.
And then, of course, the non-zero sum games or in cooperative kind of work together.
So it's important to understand because in the prisoner's dilemma, we're going to have the opportunity to cooperate.
In the case of what I'm going to tell you would be to work together by staying silent and we have defect.
You can defect, which in this case would mean admit.
So I'll set it up quick.
It's not hard.
Two people have been arrested at the same time for stealing something, but they're not caught red-handed.
The police did not have enough to just prosecute.
So they take the two prisoners or perps.
They should maybe call it the perpetrator dilemma, but it's the prisoner's dilemma.
So they put them into two different rooms, interrogation rooms.
They're offered really two choices, cooperate or defect, but it's not presented to them that way, of course.
It's presented to them as either admit to it or stay silent.
And the set up really or the deal, if you will, is if both cooperate.
And again, it's not presented to them that way.
But if both of them stay silent, the cops really have nothing.
I suppose the prosecutor, more importantly, has nothing to go after them with or it's a much lighter charge, I should say.
They have something, but it's not concrete and they can't really drop the hammer on them.
Both stay silent.
They get a year in jail.
If they both defect, they both say, we did it.
Well, now they have something to go on, right?
You admitted it so they can get, both of them get two years.
But now here's the rub and this is where it makes the dilemma.
One confesses and the other one stays silent.
The one that confesses gets off scot-free or the other one gets three years.
The one gets rewarded for, in this case, cooperating with police.
The other one gets the hammer dropped.
Understand they're in two separate rooms.
They can't communicate.
They can't strategize.
There has to be some trust.
Think about if you're sitting in that room, you're given these opportunities.
If I confess and they confess, we're serving two years.
If I confess and they don't, they stay silent, I walk.
They get three years.
But if I just stay quiet and they just stay quiet, we need to get a year.
Well, two years is better than three years, right?
Because if I choose to stay silent but they confess, essentially defecting,
and not essentially, they are defecting from me.
And now I have a three year.
So a very reasonable person would confess because one year or two years is better than three years.
That's the dilemma.
That's where you can have two completely rational actors or participants make a decision
or decisions that end up worse.
If they trusted one another that they would choose the way to get the least amount of time
and not the overly selfish going for zero,
well then, honestly, the best way to go would be to just stay silent.
That's where the dilemma comes in.
It's something worth thinking about and something very much worth taking into account.
We operate our businesses or even interactions within the business itself,
like amongst colleagues with somewhat imperfect information
or completely imperfect information where we don't get a chance to sit down and strategize
and take into an extreme.
I'm not talking about cost fixing or price fixing, come on.
But you're not really working with your competitors, right?
You're kind of trying to figure out what they're going to do and they're trying to figure out
what you're going to do and I think they think I this, right?
I think they think that I think that they think that I think right back and just back and forth.
That goes on. That's real. Boom.
The prisoner's dilemma right there.
I would urge you to kind of keep this in mind for a little bit later
because I'm going to talk about another concept and hopefully it triggers some thoughts about the prisoner's dilemma.
They had this kind of a contest where college programs would put together these little simple programs
for game theory to do this prisoner's dilemma and come up with the best strategy over and over
to win the prisoner's dilemma or to get the best result time and time again.
And they'd send in these little programs because there weren't much to them, right?
It was either going to cooperate or defect or betray.
Consistently, the programs that did the best most often cooperated.
Once in a while, they would betray specifically in response to being betrayed
or the other prisoner, if you will, defecting.
So it was cooperate until the other program betrayed then kind of, for lack of a better word,
punish them for betraying you by betraying back and then cooperating again.
Consistently, that program wins over and over and over.
I think we see this in real life.
We see this in real life economics.
Don't get me wrong.
One of the fundamental problems with that style of game theory, even from Von Neumann from Morgenstern
and I can't throw a Niels Bohr in there because I think he visited with them and he would talk to them.
He has an extraordinary mind, but he didn't publish anything.
And then further down the line, it really hinged on everyone making the most rational decision or self-interested.
The one that made the most self-interested decision and that was how virtually every equation was designed.
But we know better.
This was hinted at a little bit and I think it was kind of the start of it.
It was something called the Nash equilibrium and if we watch the movie, A Beautiful Mind,
their depiction of the Nash equilibrium was that there's, I think, five girls, five women
that came into the bar that they were at this group of friends.
And I think there's four friends, including John Nash, five women, four suitors, potential suitors.
But one of the women is, of course, it's like they're doing this flying V into the bar and the one at the head,
the front of it or the leader.
Of course, if she's a quote unquote 10, the others are something else, right?
The 10 is what gets everyone's attention.
And John reasons that everyone gunning for the 10 is hurting themselves and each other,
that if all of them were to want to have a date that night, they should all equally ignore the 10 and go after the other ones.
And they had to be careful, right?
They didn't want to offend anyone and feel like they just went for them because they felt they're more attainable.
That's how that was depicted.
It's not the best.
I get it.
It's entertainment value.
I don't know if there's really good strategy in that.
But the reality is, is it gives you the idea of cooperation and that a Nash equilibrium is essentially you are making the best decision
you can possibly make based off the information you have.
And it is irregardless, which is a very Midwestern term, irregardless.
I don't think it's actually a word, regardless of what your competitors do.
That's when you've reached a Nash equilibrium is when your decision, what you're doing, your strategy is the best that can be done regardless of what they do.
I know that seems really blanket statementy.
That's what we have to go with.
What does that all mean?
Like, so what?
You know, this is a really neat topic, man.
Help me get to sleep really early tonight.
Thanks, man.
Maybe not my intent.
Maybe it is.
If you really like that, then that's my intent.
Give me a thumbs up or like whatever that's called.
Same.
Got it.
Anyways, it comes in handy when you start thinking about shop marketing, right?
Pricing.
Pure game theory would say that if somebody, your competitors started lowering their prices, that you will probably be forced to lower your prices too.
But we know that's not the case.
That can't be.
And does that say game theory is broken?
A current game theory doesn't say anything of the sort.
Does it say that old game theory was broken, at least partially?
More so when we're talking about these theories, it has to be explained mathematically so we can talk about how something really exists and really is.
But now, how do we explain it with mathematics?
Because that's the language, right?
Almost every theory is numbers.
You have to explain it mathematically.
It's ultimately the universal language.
Current game theory is really behavioral game theory.
It takes into account many other things.
And I'm not going to go down the tangent of behavioral game theory.
We can't.
But it takes into account that people make decisions that aren't always in their best interest for multitude of reasons.
Ego, mental health, frustration, life, stress, just stuff going on.
They don't make the rational decision.
So behavioral game theory takes that into account.
It's kind of cool.
Shop marketing, if somebody lowers their price, depending on the situation, the right response might be to raise yours.
Or I find this one somewhat interesting.
Let's say you have a shop.
You're doing really well.
Maybe you own it.
Maybe you manage it.
Maybe you work in it and you got some clout.
You're a technical specialist or a mechanical specialist and you've been there for a while and you have a little bit of say in the matter,
or at least stuff's discussed around you and often you'll throw in your two cents.
Maybe they'll listen to it.
Maybe they don't.
But whatever, the shop's doing really well.
The building's too small.
It's three bays, four bays.
There's more work than they know what to do with it.
They'd like to hire more people.
There's just nowhere for them to do it.
You can't add on to the building because maybe you don't own it or there's no room.
Where should we build the building?
We could go on this side of the tracks where there's three other auto repair shops.
Or we could go to the other side of the tracks where there's no repair shops.
Where do we build the shop?
Intuitively, we would say the other side of the tracks where there's no competition.
That might be reasonable.
There is more to it than just blanket statements.
However, have you ever noticed?
I'm sure you have, but have you ever really thought about it?
Hotels are a lot of times all clumped together.
Gas stations are very often times clumped together.
If you see a target, there's probably a Walmart very nearby.
If you have a Lowe's, there's probably a Home Depot relatively nearby.
What sense does that make?
It ends up, it makes a lot of sense.
Because if you go to Target and you're looking for something, some ingredient,
you got roped into cooking for the significant other, you're on a date,
having some friends over, you're roped into cooking and you need an ingredient.
Go to Target, they ain't got it. They're all out.
If you have a choice between a couple of small grocery stores located near Target
or drive across town to Walmart, you're going to the little grocery stores.
I believe that the term for that is hotelling, not Tim.
Heh, I kill me.
Some of you will get that.
If you don't, go to automotive seminars.
Anyways, it's called hotelling and that is a strategy, right?
Especially back in the day where people are, you know, there's really no cell phones.
There's no internet in your car.
You're looking for a place to stay.
You don't have a GPS, but maybe you do even if you did, right?
It's not like you can book online.
You look and you see no vacancy.
The no vacancies, neon sign, where are you going to go?
What's in the vicinity?
You're not driving all over the place looking for the other hotel that's miles away
or depending on where you live, minutes, hours away because of traffic.
So there's logic to that.
There's actual almost like free customers or low cost marketing to get people in the door
because of proximity to your competitors.
Is it always the case?
It's really, really rare that something has always the case, but that's the logic to it.
And I wonder how many people listening know somebody that had that opportunity to build a shop, buy a shop,
and they had choices between buying or building near other repair shops or away and chose away and it failed.
The business failed.
They actually did worse than their original location.
The customers didn't follow or not enough of them did.
I've worked at shops where we've been on one side of the freeway from a residential area
and there is an auto repair shop on the other side of the freeway near that residential area.
Customers didn't want to drive across the overpass to get out of service.
It's the truth.
And maybe you could say it was our reputation.
Maybe we weren't such a good shop.
I don't know.
I think we were.
We worked really hard to change that over time we did, but it's still a thing.
There's way more houses on the other side of the freeway than there are on the side of the freeway from the shop that I worked at.
It's tough to get people to do that.
Yeah, that's part of game theory.
I guess it's possible to sit there and kind of roll your eyes or blow it off because like, well, yeah, I knew that or I've heard of that or that makes sense.
But I don't need game theory to explain it.
Sure.
Right.
We can talk about gravity.
It doesn't discount general relativity.
Like, yeah, okay, we kind of know what it is, at least a force pulling us a certain way specifically down.
But there's theory.
There's mathematics that explain it further and that's even more fascinating.
Or I think it's more fascinating because I'm up here in Minnesota.
My feet get pulled to the ground.
I have friends in Australia.
Their feet get pulled to the ground too.
It's kind of fascinating.
Right.
What is that?
Magnetism?
All right.
Yeah, somebody's yelling, you said there is no such thing.
Okay.
Magnetism as a description of the force we feel that magnetic force, that attraction or repulsion.
Okay.
These bite my head off.
Got to be able to talk about stuff because the reality is that's a longer explanation of what's going on.
I think I'll leave it at that.
I think that we kind of talked about the origins of it, which I find fascinating.
And I hope you do too, or at least interesting.
Talked about imperfect information games, perfect information games, a prisoner's dilemma.
And I think realistically how that does play.
And then start thinking about everything in the shop as a game.
And I don't mean it like a game to be played, work the game, run game.
I don't mean it like that, but start thinking of it almost as interactions that people are looking to invest in and receive.
And how those interactions work and what's going on and the contributors to it.
And again, this is really an introduction.
And I don't know how deep we go, but I have to lay some sort of framework to be able to go further.
So if you find this stuff kind of interesting, please let me know.
If you find it nauseating, please let me know.
Look forward to the comments.
If you're watching this on YouTube, please hit me with a like.
It does help the channel, helps other people find this.
Yeah, in the comments, you know, let me have it.
Give it to me straight, please.
Give me an honest, no BS assessment.
I do like talking about this type of stuff.
Anyways, I would just like to thank you for listening.
I would really like to thank you for all the messages.
You might get a kick out of this.
Some of you continually, I mean, and I very, very much appreciate this.
I do asking about my dad's health, physically healthy as a horse.
He's doing very well.
He's going to turn 80 here in a couple of months, but he's a Vietnam vet.
And this Memorial Day, he was the Grand Marshal for the Memorial Day ceremony in Red Wing.
So that's pretty neat.
He didn't get to do anything except stand.
And he said his name.
But other than that, I mean, the title's worth something, right?
Grand Marshal sounds cool.
But yeah, he's doing really well.
I thought that was pretty cool that they did that.
I don't know if too many years ago he would have been down with that.
Not that he's not a proud veteran.
He really, really is.
But also there's, I think there's just that thing where he was drafted.
Vietnam conflict is different from some other conflicts slash wars.
It's an honor.
He deserves it.
Like, I think I've hinted a few times before, especially after his heart incident.
Like, I think he's seen some things.
I do.
And part of me wants to know.
And then part of me is like, I really don't know.
I want to know, which is odd to say, but I don't know.
Part of it, too, is I don't know if I want him to have to tell me to relive it.
That seems kind of crappy to do.
And for what?
So I can be like, oh, wow, I respect you more now.
I don't think that's the could be the case.
It's impossible.
I have the utmost respect.
So anyways, yet another tangent.
I shouldn't rename the podcast something tangent.
Anyways, I really do thank you for listening.
And I appreciate the messages.
I appreciate a lot of the ideas.
Seems like the Mount Rushmore thing is popular.
Also, thank you for the comments about the couple of videos that went up on reels.
I got a level with you.
They were shot off the cuff to send to a couple of friends of mine.
Justin Morgan, Pedro Delatory, Brian Pollock, Paul Daner, just goofing off.
Hey, look at this.
And then one day, Tracy is like, hey, what are you doing today?
What do you got going on in a shop today?
So I just send her the video right here you go.
And boom, it's up.
So it's kind of cool.
And so thanks.
Thanks for the responses.
Thank you for the ideas, too.
I enjoy them.
If you want to be on the podcast, have ideas for future podcasts, different Rushmores that
I would like to hear.
Please let me know in the comments.
You can message me on Facebook.
You can email me at Matt Fonzel podcast at gmail.com.
And also big thanks to our sponsors, Autel and Pico Technology.
And also thanks to the Automotive Repair Podcast Network, who I accidentally misnamed the last
couple of episodes because sometimes they go into overdrive or cruise control.
Yeah.
Zombie mode.
So sorry about that.
It's Automotive Repair Podcast Network.
There you have a pretty cool app.
It works quite well.
So maybe check that out.
If you're interested, listen to some of the other content providers on the network, including
Karm Capriotto, if you've ever heard of him.
Kind of a newbie at it.
Another guy, Craig something.
He's got a really cool brother.
You know, Mobile Tech.
Not the guy that does the podcast, but his brother's a Mobile Tech.
Sean O'Neill, very cool guy.
His brother does a podcast on this network.
His name's Craig.
And he's awesome.
He's a good dude.
He's just one of my rocking favorite people in the world.
So check that guy out seriously.
And until next time, take care.
About this episode
Game theory gets translated into practical thinking for auto repair shop strategy, especially around pricing and competition. The hosts start with classic examples like poker and the prisoner's dilemma, then broaden the idea of “games” to everyday business interactions. They contrast pure game theory’s prediction about price cuts with “behavioral game theory,” where responses can differ. They also touch on location strategy via “hotelling,” and how imperfect information shapes decisions in shop life.
Original notes
Thanks to our Partners, Pico Technology, and Autel
In this episode, Matt begins laying the groundwork for a larger discussion on game theory and how it applies far beyond poker tables, chessboards, casinos, or movie references. What starts with John von Neumann, poker strategy, bluffing, and imperfect information quickly becomes a broader conversation about how people, businesses, customers, competitors, and coworkers interact.
Matt explains that “games,” in the game theory sense, are not just games. They are interactions where people make choices, respond to incentives, interpret incomplete information, and try to get outcomes. That means shop pricing, marketing, hiring, customer behavior, technician cooperation, and even where a business chooses to locate can all be understood through this lens.
The episode touches on the difference between games of perfect information, like chess, and games of imperfect information, like poker. Matt uses poker as an entry point into bluffing, strategy, table image, and why mathematically sound behavior may involve moves that seem strange in isolation. He then connects that to real-world business decisions, where the “obvious” move, such as lowering prices because a competitor did, may not actually be the strongest response.
Matt also walks through classic game theory examples like the Monty Hall problem and the Prisoner’s Dilemma. The Prisoner’s Dilemma becomes especially relevant to shop culture and business strategy because it shows how cooperation can often outperform pure self-interest, even though individual incentives may push people toward betrayal or defensive behavior. That idea becomes a bridge into behavioral game theory, which accounts for the fact that humans do not always make clean, rational, mathematically optimal decisions.
From there, the conversation moves into automotive repair shop strategy. Matt discusses why competitors often cluster together, using examples like hotels, gas stations, Target and Walmart, Lowe’s and Home Depot, and auto repair shops. The point is not that a shop should always build next to competitors, but that proximity, customer behavior, friction, convenience, and visibility may matter more than the simplistic idea of “go where there is no competition.”
The episode closes by encouraging listeners to start seeing shop life as a series of interactions, incentives, exchanges, and strategies. Not “playing games” in a manipulative sense, but understanding that every interaction involves expectations, investments, risks, and perceived rewards.
Key Topics Covered
- Game theory as a way to understand real-world interactions, not just board games or gambling.
- John von Neumann, poker, bluffing, and imperfect information.
- Why poker strategy involves more than simply playing the cards.
- The role of Oscar Morgenstern and economic theory in the development of game theory.
- Why older economic models struggled with human irrationality.
- The difference between perfect information games and imperfect information games.
- Chess as a perfect-information game and poker as an imperfect-information game.
- The Monty Hall problem and why switching doors improves the odds.
- The Prisoner’s Dilemma and why cooperation often beats betrayal over time.
- Tit-for-tat style strategies: cooperate first, respond to betrayal, then return to cooperation.
- Nash equilibrium and the basic idea of making the best available decision based on known information.
- Behavioral game theory and why people do not always act rationally.
- How game theory applies to shop pricing, competition, and marketing.
- Why lowering price in response to a competitor may not be the right move.
- Why businesses often cluster near direct competitors.
- Shop location strategy and customer convenience.
- Seeing everyday shop interactions as “games” in the game theory sense.
Memorable Ideas
- “The game” is not necessarily manipulation. It is the interaction itself.
- Poker is not just cards. It is incomplete information, behavior, bluffing, risk, and response.
- Cooperation can be a stronger long-term strategy than constant defection.
- A competitor lowering their price does not automatically mean you should lower yours.
- Sometimes the stronger move is counterintuitive.
- Customers may choose convenience and proximity over reputation, price, or even prior loyalty.
- A shop’s strategy is not just what it charges or how good it is. It is also where it sits, what friction customers face, and what alternatives are nearby.
Thanks to our Partner, Pico Technology
Are you chasing elusive automotive problems? Pico Technology empowers you to see what's really happening. Their PicoScope oscilloscopes transform your diagnostic capabilities. Visit PicoAuto.com
Thanks to our Partner, Autel
From drivability diagnostics and TPMS service to ADAS and advanced safety systems, Autel helps technicians follow OEM procedures and repair with confidence. Learn more at Autel.com
Contact Information
The Automotive Repair Podcast Network: https://automotiverepairpodcastnetwork.com/
Remarkable Results Radio Podcast with Carm Capriotto: Advancing the Aftermarket by Facilitating Wisdom Through Story Telling and Open Discussion. https://remarkableresults.biz/
Business by the Numbers with Hunt Demarest: Understand the Numbers of Your Business with CPA Hunt Demarest. https://huntdemarest.captivate.fm/
The Auto Repair Marketing Podcast with Kim and Brian Walker: Marketing Experts Brian & Kim Walker Work with Shop Owners to Take it to the Next Level. https://autorepairmarketing.captivate.fm/
The Weekly Blitz with Chris Cotton: Weekly Inspiration with Business Coach Chris Cotton from AutoFix - Auto Shop Coaching. https://chriscotton.captivate.fm/
Speak Up! Effective Communication with Craig O'Neill: Develop Interpersonal and Professional Communication Skills when Speaking to Audiences of Any Size. https://craigoneill.captivate.fm/
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