What is Game Theory?
According to our online dictionary, game theory is the branch of mathematics concerned with the analysis of strategies for dealing with competitive situations where the outcome of a participant's choice of action depends critically on the actions of other participants. Game theory has been applied to contexts in war, business, and biology.
David K. Levine, Department of Economics, UCLA , refers to game theory in a little more of an expanded way:
What economists call game theory psychologists call the theory of social situations, which is an accurate description of what game theory is about. Although game theory is relevant to parlor games such as poker or bridge, most research in game theory focuses on how groups of people interact.
There are two main branches of game theory:
Noncooperative game theory deals largely with how intelligent individuals interact with one another in an effort to achieve their own goals.
Note: So, this already confuses me because I do not know what to do with non intelligent individuals.
In addition to game theory, economic theory has three other main branches: decision theory, general equilibrium theory and mechanism design theory.
All are closely connected to game theory.
He then continues with a detailed description of the 3 types, indicating that they are closely connected to game theory...
which means what exactly?
- If something is closely connected does it mean that it is connected or not connect?
- And, if something is closely connected does that also mean it is similar or could be similar?
- I have never understood why Educators have to make this stuff so complicated.
Businessmen (and business women) like Game Theory because it allows them to predict outcomes based upon a series of prearranged stimuli. For example, if this is done, then employee(s) will to do this or if that is done, then employees will do that.
The Prisoners Dilemma is one such game that is used often. Pretend that you have detained 2 people that you think committed a crime but you have no real evidence. You interrogate each individual in a separate room by 2 different people but both detainees are told the same scenario.
Each of these detainees can say nothing and something will be up against them and they will go to jail for 3-5 years, maybe more. Or, the first one to confess and turn on the other one, will go free and the other person will go to jail for 10 years. If however, the one who confesses will not turn on their partner, then they will go to jail 15-20 years.
The purpose of this game is to get someone to divulge their dominate strategy of self-preservation which psychologists believe is inherently present in all of us.
This type of game theory revolves around a merchant who own a store downtown with a rather large front bay window. If that window were to be broken by vandals, the game suggests that this would be positive because new glass would need to be purchased and installed and a local crafts person would have to be hired to do the installation earning additional money that had not been budgeted so more more money would have the opportunity of being spend inside this local economy.
When I was teaching Business or Economics, I would suggest that they all leave class and drive their cars downtown and break all the storefront glass of all the merchants and when they got caught not to mention my name but to tell the officials that they were stimulating the economy.
Of course, I told them that I was joking and no one actually did this.... At least, I don't think they did... lol
Most, if not all of business is played out as if one is playing a game and sometimes business people get carried away with the game and that is somewhat understandable because it is rather addictive as all games are or can be; but, the idea behind game theory is that we control the game and the game does not control us.
Game theory came of age in 1994, when three pioneers in the field were awarded the Nobel Prize. It all began in 1944, when mathematics genius John von Neumann and economist Oskar Morgenstern published their book Theory of Games and Economic Behavior. Immediately heralded as one of the greatest scientific achievements of the century, their work provided a systematic way to understand the behavior of players in situations where their fortunes are interdependent.
Von Neumann and Morgenstern distinguished two types of games.
In the first type, rule-based games, players interact according to specified “rules of engagement.” These rules might come from contracts, loan covenants, or trade agreements, for example.
In the second type, freewheeling games, players interact without any external constraints. For example, buyers and sellers may create value by transacting in an unstructured fashion.
Business is a complex mix of both types of games.
I have always believed that those who know how the play the game of Chess well will also be successful in business at all levels. In the game of Chess, you are playing against only one opponent with each of you having several pawns with limited moves, 2 castles with specific moves, 2 bishops with specific moves, 2 horses with specific moves, 1 Queen, and 1 King with the object of the game to use your various chess pieces in such a way as to put your opponents King in a position where it have no move to make or CHECKMATE.
Excellent Chess players can see and/or speculate in their heads, 10 moves ahead and all the various moves that could or may be taken by one's opponent including all the counter moves that may or could be taken by you.
This same mental focus, I have been told is present in golf but I do not see it at all... as for me, golf does not even come close with all the stuff that Chess requires you to keep floating around in your consciousness.
Chess is not just a game of strategies but it is a game where chess pieces are intentionally sacrificed in order to gain the upper hand or a strategic advantage on one's opponent. However, when that is translated into the “real world,” then that means that certain businesspeople are willing to sacrifice certain employees in order to close or conclude a pending deal.
And, I am sure that is where the phrase, It's nothing personal, it's just business, came into existence.
It takes a specific mindset to conduct business at the highest level, and those who are strongly considered for those positions are the ones who are:
- the sniper who takes the shot
- the bombardier who drops the bombs
- the basketball star that takes the shot with 1 second left
- the winners of chess matches
- the mountain climbers who reach the top
- the gunslinger who draws his firearm the fastest
This is exactly why so many people who call themselves leaders are nothing more that fairly competent managers... who, never wanted to excel at playing chess because it was too mentally focused and emotionally draining.
How well do you play the game?