Game Theory Application and Use in the Modern World
Does Game Theory apply to real life? Take a look at McKinsey and Company a respectable business with ties primarily in resource management and efficiency. In an article in 2009, they acknowledged how Game Theory is a necessary strategic tool. One in which greatly benefited their managers in unprecedented situations. Now while the article goes on to display their adaptations to this model. Game Theory never the less serves as a keystone to modern business.
And this is shown in their project regarding European railways. (1)
References:
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- Making Game Theory Work For Managers – An article from Mckinsey and Company, giving an in-depth look at their application of the Game Theory.
​- http://www.mckinsey.com/business-functions/strategy-and-corporate-finance/our-insights/making-game-theory-work-for-managers - Mitchell Osak, "Using Game Theory" -- An article from the Financial Post explaining the uses of game theory in real life situations to improve strategic decision making. - http://business.financialpost.com/executive/using-game-theory-to-improve-strategic-decision-making
Game theory has continued to have a lasting impact in real world situations, as companies utilize them to make high risk/high reward strategic decisions in the highly competitive market we live in. It takes into consideration the different situations, companies, and industries when determining the best strategic choice. These games are potential mathematical scenarios that include a set of players that in a real world situation would be considered an individual or firm, a set of strategies available to those respective players, and a payoff specification for all the possible combinations of strategies. It has the ability to predict the outcomes of interacting firms where an action of a single firm directly impacts the payoff of the other participating players. Meaning, when firms are making decisions or choosing strategies, they should always take the causes and affects of each potential choice and payoff into consideration. They should also remember that other players will also be taking that strategy into account as well, and this understanding is known as the respective company’s optimal strategy. This methodology is ideal for situations where competitive or individual behaviors can be accurately modeled. Situations include auctions, bargaining activities, product decisions, supply chain design, etc. Overall, game theory can potentially reduce business risk, improve internal position regarding decisions, gain valuable information on competition, and maximize strategic utility. (2)