Economics

Annotated Bibliography on concepts of Game Theory in Business

Any action taken in a business may or may not prompt counteractive actions from competitors. In the video, A Beautiful Mind, Nash explores the methods of strategic thinking. In the book, Economics of Strategy, Besanko David provides an example where Pepsi owner, Gruth, applied strategic thinking and economics principles to turn around the fate of his company.

Sara Robinson. 2004. How Real People Think in Strategic Games.

In this article, the author describes a celebrity party where the host chooses a game of numbers for the party (Sara, 2004). A mathematician present at the party, applying strategic thinking and reasoning, placed her guess at zero, arguing that the guesses of other participants would average to around that figure (Sara, 2004).. The winner was an economist who had suggested the game and had guessed 31 himself (Sara, 2004). It further explores the applicability of game theory to several other situations. This article seeks to explore the thinking of other people in the bid to win by anticipating the actions of the other players. This same scenario plays out in the real world of business as each tries to out think the other and emerge the more profitable. This article is germane to the topic of game theory in its application to real-life events and the observation of game theory at play. This article portrays the game theory in its practical terms.

Lindstadit, H. & Muller, J. 2009. Making Game Theory Work for Managers.

This article seeks to explore the applicability of game theory to management, where, according to the article, the managers have greatly neglected it, regarding it as “more theoretical than practical” (Lindstandit & Muller, 2009). The article gives some models where game theory can be applied with illuminating results (Lindstandit & Muller, 2009). This article is most relevant to the game theory as it diverts from the cliché explanation of the same and adopts a new model explanation in practice. Further, the article directs the applicability of this theory to where it matters the most, management.

Sarah Robinson’s article argues that different people apply the strategic reasoning at different degrees. Thus, one is left in a dilemma as to what extent is the game theory applicable with precision. Further, the scale of applicability of the theory is left in question.

References

Lindstadt, H. & Muller, J. (2009). Making Game Theory Work for Managers. Retrieved from:  “http://www.mckinsey.com/insights/strategy/making_game_theory_work_for_managers” http://www.mckinsey.com/insights/strategy/making_game_theory_work_for_managers

Robinson, S. (2004). How Real People Think in Strategic Games. SIAM News, 37(1): 1-3. Retrieved from: “http://www.google.com/url?sa=t&rct=j&q=&esrc=s&source=web&cd=2&cad=rja&uact=8&ved=0CCgQFjAB&url=http%3A%2F%2Feconweb.ucsd.edu%2F~v2crawford%2FRobinsonSIAMNewsJan04games.pdf&ei=0eK3U67pAYWf7AbNoIG4AQ&usg=AFQjCNE9EvNchCkn-23nku2275kdp6NU2A&sig2=X2A_9CPxHF-3OkXgE_v1pA&bvm=bv.70138588,d.ZGU” http://www.google.com/url?sa=t&rct=j&q=&esrc=s&source=web&cd=2&cad=rja&uact=8&ved=0CCgQFjAB&url=http%3A%2F%2Feconweb.ucsd.edu%2F~v2crawford%2FRobinsonSIAMNewsJan04games.pdf&ei=0eK3U67pAYWf7AbNoIG4AQ&usg=AFQjCNE9EvNchCkn-23nku2275kdp6NU2A&sig2=X2A_9CPxHF-3OkXgE_v1pA&bvm=bv.70138588,d.ZGU

Frequently Asked Questions

What is game theory, and how does it apply to business?

Game theory is a strategic framework used to understand and predict the actions of competitors in a competitive environment. It is widely applied in business to anticipate the decisions of competitors and maximize profitability.

How does game theory impact management decisions?

Game theory can help managers anticipate the behavior of competitors, make better decisions, and navigate competitive environments. It provides models that improve decision-making and strategic planning in business.

What is an example of game theory in a real-world business scenario?

An example of game theory in action is when businesses anticipate each other’s pricing strategies, as demonstrated by Pepsi owner Gruth, who used strategic thinking and economics principles to turn around his company’s fate.

Why do some managers neglect the use of game theory in business?

Some managers view game theory as overly theoretical or abstract, making them hesitant to apply it in practical business situations. However, game theory offers valuable models and insights that can enhance decision-making in real-world management.

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