Game Theory and Business Strategy

Cooperation Game | Bargaining Game | Business Strategies | Case Study

Why Game Theory Important to Business Today?

Game theory studies strategic situations where players choose different actions to maximize their returns. Economists have used game theory to analyze a wide array of economic phenomena, including bargaining, duopolies, auctions, and they have developed strategic thinking.

Strategic thinking is the art of outdoing an adversary, knowing that the adversary is tyring to do the same to you. All of us practice strategic thinking at work as well as at home.

The payoffs of the game are generally taken to represent the utility of individual players. Often in modeling situations the payoffs represent money, which presumably corresponds to an individual's utility. This assumption, however, can be faulty.

A prototypical paper on game theory in economics begins by presenting a game that is an abstraction of some particular economic situation. One or more solution concepts are chosen, and the author demonstrates which strategy sets in the presented game are equilibria of the appropriate type. Naturally one might wonder to what use should this information be put. Economists and business professors suggest two primary uses