Game Theory for Strategic Thinking
Much of the complexity in today’s business stems from the way competitors and other players respond and thus affect the outcome of our decisions. The ability to anticipate the responses of others, how an interactive situation will unfold, and make one’s decisions is strategic. Game theory is the science of strategic decision-making. It has a lot to teach business managers.
Since its inception in the 1940s, the subject has been a principal arm of study of economic behaviour. In the last couple of decades it has contributed significantly to the subject of business strategy. Its principles provide powerful insights in formulation of strategies for competitive advantage.
Game theory is based on the fact that much of human activity in business and elsewhere is interactive. Most human situations, especially in business, can be construed to be a game comprising of players, their strategies and consequent payoffs, or outcomes. A player can create strategic advantage by not only making choices after anticipating the actions of other players, he can shape the game by a variety of methods to create strategic advantage for himself.
Modern thought on strategy has shifted from planning to thinking and acting strategically. Managers can learn to think strategically by the use of classical games, study of the principles of the theory of games, and juxtaposing them with certain fundamental values of human behaviour.
They can be invaluable lessons in grooming and preparation for the role senior managers are already playing in the global markets. Indian managers can hardly afford to ignore the competitive edge game theory can help them create for their companies.