The application of game theory helps to develop business models to manage interactions of decision makers either in a scenario of cooperative or competitive behavior for conflict resolution.
The application of game theory inside a firm.
For a layperson, the initial concept of the game theory might look like just a strategic look to boost competitive abilities against competitors.
Example of an application of game theory where two internal entities of a firm playing bearing in mind the purpose is to win against the competitors.
There are two players A and B.
The manager’s objective is to increase workers efficiency. It is gain lies in the better productivity of the workers and the other hand, workers ‘ gain’ is in reduced ability assuming a lower efficiency level benefits them
The probability of opting to monitoring depends upon the gains of workers in the form of reduced efficiency will increase as well.
The possible results are four:
Win-win
Win-lose
Lose-win
Lose-lose
In the case of monitoring
If a manager doesn’t monitor and the workers reduce efficiency, the manager loses while the workers gain. In this situation for the players the workers and a loss for the manager.
In the case of monitoring
If the manager monitors but the workers still doesn’t perform well he faces colossal loss as he suffered monitoring as and reduced efficiency of the workers.
How can you develop game theory approaches?
You first asses the magnitude of the problem. Then recognize your specific business type, example; consultancy or real estate to avoid wandering. Customized solutions are only required if problems are quite peculiar and are not of general nature. However most of issues are dealt with general understanding of basic game types mentioned in the article.
Source: https://www.managerial-economics-club.com/application-of-game-theory.html
seangametheory 