Game Theory In Corporate Strategy
With the global pandemic , massive human and economic losses , political and social turmoil and abrupt business transformations, our old ways are gone and with new, we are that optimistic.
Game theory can help , as it isn’t just a game, its a classical sound analysis of logical moves in any applied situations……………….
Game theory is considered as a revolutionary interdisciplinary phenomenon blending science and philosophy to supply valuable insights to the complex problems in very unprecedented situations. It helps organizations as a strategic tool in considering competitors likely moves and the implications of these moves for their own strategy.
It sees decisions as separate possible outcomes which are interdependent on the mutual interests and benefits among all the parties , as it creates a collaborative environment to explore various potential scenarios.
Game Theorists alert on the below 2 kind of interactions:
- They consider how a competitor response to the strategic move might change the original assumptions behind the move like for example, challenging a competitor in one area might lead to a counter response in their advantage.
- Slight strategic impressions or messages can convey their moves to the competitor.
Game theory becomes very relevant when the competitors are interdependent and the choice made by one competitor is dependent on the choices made by the other competitors in the industry. When initiating an interdependence move , consider the 2 guiding principles:
- Penetrate the competitors mind: The strategy should be organized from the retaliating angle of the competitor and their game plan to our actions.
2. Thinking forward and reasoning it backwards: strategists should choose their moves according to the expected move from the competitors. Envisioning what the competitor might do to reasoning it backwards to what is sensible to do in this context now.
The game theory can be formulated into 2 methods :
- War Gaming
In this situation it gets very helpful to get the stakeholders appreciate each other’s positions through actually playing out their intended roles as there can be uncertainty on the range of outcomes.
2. Mathematical Game (Prisoner’s Dilemma)
It is recommended when there is clarity on the limited number of outcomes and their values associated with each outcome can be quantified appropriately. The prisoner’s dilemma has its equivalence when there are two major players competing strongly in a tight situation of interdependence.
