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Game Theory

Game Theory is a mathematical discipline which helps you understand how others may respond to your decisions.

Why it matters:

  • Game Theory is useful when your decisions impact others and their decisions impact you. For example negotiations or business decisions like if you change Pricing, Pricing Tier, Discounts and Promotions, then knowing how will suppliers, customers or competitors react?
  • It helps you identify who is playing Zero-sum game versus Positive-sum Games.

The details:

  • The Complexity rises as the number of players rises. Hence, it becomes critical to identify and focus on dominant scenarios. If there are no dominant scenarios, then you can still find the Nash Equilibrium where all players choose the best possible strategy.
  • We often have to decide based on incomplete or imperfect information. In this situation, based on what you know create a Decision Tree to narrow down to a limited number of options.

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