Question

Topic: Student Questions

Game Theory

Posted by Anonymous on 12/12/2009 at 1:16 AM ET 125 Points
Plz cite a few examples where Game Theory has been applied to Business situations ( Recent ones preferably). Is it just an arcane concept which is impractical or is it really being used in the industry as widely as BCG/SWOT/GE Matrix etc.Elaborate. Thanks.
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  • Posted by Jay Hamilton-Roth on 12/12/2009 at 8:42 AM Accepted
    We don't do student's homework, but we'd love to help you out with your thinking (see guideline #5: https://www.marketingprofs.com/ea/guidelines.asp). What do YOU think? Why?
  • Posted by koen.h.pauwels on 12/12/2009 at 9:18 AM Accepted
    Hi,

    Your question interests me, and I would like to hear your opinion and that of forum participants. In my Game Theory class during the UCLA PhD, the economics professor started by admitting that, in a recent high-stake game (bidding on airwaves for broadcasting), the two largest bidding parties each hired the best Game Theory economists, but that neither of them gave advice following from the mathematical solution to the Game! Likewise, the marketing literature is rich in experiments that show that people often do not behave like the completely rational, profit-only driven players assumed by Game Theory. For one, the Ultimatum game (one player offers a way to share $10, and the other player either accepts or declines, in which case nobody gets anything) yields very different outcomes in real life ($6 /$ 4) as compared to its 'rational' solution ($ 9.99 /$ 0.01)

    In my opinion, the best applications of Game Theory only use the concepts to 'lay out the land', i.e. discuss elements of a real-life game (players, pay-off matrix, one-shot or repeated,...) but do not solve the game. Brandenburger and Naalebuff's 'Coopetition' book (1996) is a great example of this approach.
  • Posted by Gary Bloomer on 12/12/2009 at 11:58 AM Accepted
    Dear pranay_1511,

    As Jay points out, this is a "non-homework" zone.

    However, there's a simple way you can make your life far easier.

    How?

    By playing the following game.

    The rules are quite simple and the method of scoring is straightforward.

    The game is called "Prove Your Worth".

    You play by showing you're prepared to rephrase your question and show you're willing to do some of your own work that you'll get better results and far more useful feedback.

    What work have you already done on game theory? What aspects
    of game theory have you already written about, evaluated, or introduced into your research? How does game theory tie in with your studies and how are you making use of it to make yourself stand out?

    You score when you answer these questions (or any similar questions) and you'll score because you'll find a strange thing happens: people will take you more seriously, you'll receive more help, and you'll help yourself by building your own credibility as a serious researcher.

    So, do you want to play? If you do, it's your move. And remember, you cannot score until you move and you cannot move without taking part in the game.

    Sneaky? But of course! But that's life—and I hope this helps.

    Gary Bloomer
    Wilmington, DE, USA
  • Posted on 12/12/2009 at 2:38 PM Author
    Dear Jay and Gary,

    I appreciate your concern.Thanks for the feedback.

    To clarify the matter - This is no home work! Anyways lets get on with the issue.

    I have been intrigued by game theory for a long time and have researched quite a bit.

    Consider this : Indian Telecom sector was dominated by Airtel and Vodafone for a long time and then a newcomer Tata Docomo comes up and starts a price war starting tariffs for per second and smashing the profitability of the entire industry. Plz correct me if I am wrong but isn't there a similarity in all this and Prisoners Dilemma.

    Of all the text that i have browsed including The essential John Nash and few other books on Game Theory, I could only make out that all this augurs well to explain the actions of companies in the hindsight but how Game theory as such helps them is still a mystery to me.

    Dear koen.h.pauwels thanks for the explanation.
  • Posted by Gary Bloomer on 12/12/2009 at 3:29 PM Member
    Dear pranay_1511,

    Good come back.

    You'll find a lengthy debate on game theory in marketing here:

    www.marketingprofs.com/ea/qst_question.asp?qstID=2758

    Note that this is from August of 2004, so your line of enquiry is
    not what one might call "new".

    You'll find an interesting paper on modeling rationality in marketing decision-making with game theory here:

    https://www.springerlink.com/content/bw40017446335480/

    Likewise, Eric Sink has thoughts on game theory in marketing here:

    www.ericsink.com/articles/Game_Afoot.html

    You'll find Forbes covered this topic here:

    www.forbes.com/forbes/2005/1114/093.html

    And you'll find an article "Game Theory in Marketing Management: Issues and Applications" by C. Anthony di Benedetto here:

    www.msi.org/publications/publication.cfm?pub=182

    In the Prisoner's Dilemma, and in most of business and all game theory, the only true role of each individual player (prisoner, business, or game) the logical goal for the "players" would appear to be for them to maximize (and privatize) their gains and to socialize (or stick it to the opposition) the losses.

    We've seen classic examples of this throughout the recent government bank and financial bail outs—net result, the tax payer gets shafted. But the upside of this is that the tax payer (the losing side) holds all the aces when election time rolls around!

    Whoops! There goes the economy—and with it, the balance of trade and any semblance of what might have once been "normality".

    The downside to playing any game is that, much like the blackjack tables of any casino: gambling only pays when you're winning.
    Winning is all well and good, but what of the Bernie Madoffs of the world? Were any sane person in his shoes, and with nothing to lose, surely they'd be singing like the birds?

    I hope this helps. Good luck to you.

    Gary Bloomer
    Wilmington, DE, USA
  • Posted on 12/17/2009 at 12:25 PM Author
    Thanks a ton Gary.

    Your links are well and truly insightful.

    Am researching further on the topic and would like to keep this post open for a while.

    The jury is still out whether Game Theory is practical or not....
  • Posted by Gary Bloomer on 12/19/2009 at 6:00 AM Member
    Dear pranay_1511,

    You are most welcome. Might I ask one teeny-weeny favour?

    I'd greatly appreciate your permission to use your comment "Thanks a ton Gary. Your links are well and truly insightful." as a testimonial on my blog (with your first name, last initial, and your city and country).

    This isn't for commercial purposes, it's just to show I offer value. If you'd be willing to permit this I'd really appreciate it. If you agree, please click my name at the top of this post and send me and e-mail just to confirm your details.

    Thank you in advance, and again, good luck with your research.

    Gary Bloomer
    Wilmington, DE, USA

  • Posted on 1/2/2010 at 10:51 AM Member
    koen.h.pauwels,

    "discuss elements of a real-life game", that is insightful. And if we take a step further, if students who are working with you are less ambitious, that is, do only one or two things for you and do it quickly it would be all the more helpful than some less practical full scope...
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