Why Game Theory Is Interesting to Business Leaders

Joe Weinlick
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Leaders in the business community constantly find themselves looking for fresh ideas, and the realm of game theory is exceptionally rich with opportunities for exploring business management. The theories that influence how games of all sorts play out are as valid at the board table as they are on the tabletop, and understanding some key elements of game theory can help leaders better understand their workers and their competition.

Today's business leaders are likely to be familiar with video games, as well as traditional sports games such as soccer or tabletop board games. One of the key decisions made by game designers from the outset is the focus of the game. Designers need to determine if they are working on a competitive game, whereby players will work against one another, or on cooperative entities. Most modern games combine these two elements and weave them throughout using advanced game theory, but each section of a game should adhere to one or the other as a focus. Similarly, business leaders need to determine which of their operations should follow a competitive or a cooperative pattern.

Game theory often proposes that cooperative play, such as that found in multi-player online role-playing games or in many modern board games, is a great choice for advancing goals. This is largely because elements work in harmony to achieve results as quickly as possible. Cooperative designs from game theory can be used to increase team production rates and interdepartmental cooperation. Competitive game theory elements are best applied when the need for fast motivation trumps the slow-and-steady pace of most cooperative designs. This includes contests that reward top producers and team-based competitions that are results-driven. Competitive design is also a great way to frame your relationship with other companies in your field, allowing you to boil down information into scorecards that are easy for investors and managers to understand.

One important element that appears in game theory of all kinds is the Nash equilibrium. From video games and boardrooms to the highest echelons of political science, this concept has an exceptional power to both drive results and ensure consistency. The equilibrium is the point, or series of points, where players in a game do not gain advantage or take any losses by staying on their current course. The most common illustration of this is the Cold War, when mutually assured destruction locked the political players into an equilibrium, but in business leadership, it is a desirable point that ensures that your teams are operating optimally or that you are in a great spot for continued success.

Determining which elements of your business should follow either competitive or cooperative game design provides an excellent method of streamlining operations. Remember that winning and losing aren't always the goal, it is possible to reach an equilibrium where efficiency and effectiveness deliver strong results, and maintaining this equilibrium may be the optimal way of using game theory to drive operations in your business.

Photo courtesy of podpad at FreeDigitalPhotos.net


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