Game Theory

What is Game Theory?

Game Theory is a scientific modelling of interactions between parties, each of which are pursuing their own interests. The parties choose their actions, mindful of what the other may think and do which helps shape interactions and influence behaviour of other parties, predicting most likely outcomes.

How does Game Theory work?

Game Theory has a few basic concepts which can be defined as:

• Players – The people or organisations play the game
• Strategies – The actions that players can choose
• Pay offs - The values given to players at the end of the game

The players then choose their actions, mindful of what other players may thing and do.

• Playing better than the other side. Understand the rules of a game and leverage the optimal strategy in a given setting.
• Changing the game being played. Use game theory to shape interactions and influence behaviour of other players towards a desirable outcome.

Using Game Theory to drive negotiations?

Game Theory is essential to understand negotiations, as it helps to predict how people will behave when they are in a competitive situation. Negotiations also come with a lot of emotion attached which can lead to irrational decision-making, however Game Theory, helps mitigate impulsive behaviour. Game Theory also encourages win-win solutions, so during negotiations individuals will be able to cooperate more strongly which should hopefully end in a mutually beneficial agreement.

Benefits of implementing Game Theory?

Game Theory produces optimal decision making in a strategic setting which helps people make informed choices regarding pricing, product launches, target market and much more, and usually ends up in a win-win agreement. Game Theory helps fine-tune an individual’s negotiation skills, as well as helping you identify any potential conflicts and dilemmas. Ultimately, Game Theory provides a structured approach for analysing complex situations with conflicting interesting, allowing you to understand the behaviour of your suppliers and competitors.

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