When it comes to human decision making, it can seem that there are so many factors at play that there is no way to predict outcomes. Human interactions are thought to be complex affairs with more emotional influence than rational influence. However, mathematicians have been involved in creating and refining a method called game theory that models conflict, competition, and cooperation among people. Since the theory came info formal academia in the 1940s there have been many advances. Game theory has become an accurate and impressive tool. In a sense, game theory uses logic and mathematics as a booster to increase our understanding of how to act strategically within a human interaction. Sounds pretty useful, doesn’t it?
Politicians have been putting the mathematical models behind game theory to use for years. A strength of game theory is that it can be applied to situations where to forces are motivated towards different goals. This kind of a conflict is very common in politics, and it is important to global leaders to be able to understand and predict their opponent’s next moves.
Recently, businesses have taken a cue from politicians, and started applying Ad Hoc Reporting to their own conflicts. Within a social situation, such as a sale, there are two units who desire different outcomes, and are motivated to act rationally in a way that will advance them towards their desired outcome. With the application of game theory, the moves that units make within a sale can be explained through a mathematical lens. Factors such as payoff, possible responses, and the probability of success at each stage can be considered. The mathematical models used by game theorists can be used to explain interactions, and it players have the knowledge ahead of time they know how to react to each move of the opponent.
Game theory and business analytics go hand in hand. Through business analytics, a company is getting a numbers-based look at their operation. These numbers illuminate aspects of the business which, without numbers, might remain hidden. Instead of staying on the surface, business analytics dives deeply into the hidden facts and figures that can create a clarity if viewed correctly.
Game theory goes hand in hand with this because game theory relies on numbers as well.
Game theory can be used to predict and model competitive behavior among individuals or groups. With the help of data that has been collected about a business, game theory models will be more accurate and more reliable. There are different situations that can be modeled with game theory, and of course with some scenarios there will always be uncertainty involved. However, the data that a company has collected will serve to make the mathematical models built through game theory much more helpful.
In business, we are learning that numbers matter more than we ever knew. Technological advances give us the ability to harness the power of data and information, and take away the guess work in decision making. With an informed strategic plan, a business can make decisions that allow it to overcome competition within the market place.