What is Game Theory ?

Economics is much like a game, wherein players anticipate each other’s moves. This gave birth to a new kind of mathematics, which is called game theory.

Game theory is a branch of applied mathematics. It enables you to analyze situations in which parties, called players, make decisions that are interdependent. For example, you are running a company and you need to reduce your staff strength as there is loss in business. It is not a simple decision. You have to take into account various factors such as company’s reputation, motivation level of employees, social media, Board of Directors of company, financials of the company. This is a tough decision emotionally. But it has to be taken. Game Theory can help you interconnect the perspectives of all stakeholders ( players as per Game Theory) and arrive to the best, feasible decision. Each player considers the other player’s possible decisions, or strategies, in formulating his own strategy. A solution to a game describes the optimal decisions of the players, who may have similar, opposed, or mixed interests, and the outcomes that may result from these decisions.

 Examples of application of Game Theory

  • To understand which political parties will support each other
  • To know possibilities of merger and acquisitions of businesses
  • To decide the best possible price to sell for a product or commodity in a business
  • To estimate the voting power of voters and its impact
  • To strategize on where to locate a manufacturing plant
  • To study behaviour of certain animals and plants 
  • In a labour-management dispute the two parties certainly have some conflicting interests, but both will benefit if a strike is averted. Game Theory helps this kind of agreement.

Game Theory addresses an enormous range of decision making possibilities. There can be several types of game theories. A game can be designated as being a one-person, two-person, or n-person depending upon number of players. A player need not be a person. It can  a nation, a corporation, or a team comprising many people with shared interests.

Game Theory can be classified into various types depending on factors. Examples are given below.

  1. In chess, the player knows the opponent’s board layout at all times. ( Perfect Information Game)
  2. In Poker game, the player doesn’t know his opponent’s cards. ( Constant Sum Game)
  3. A seller and a buyer agree on a price and sign a contract.  (Cooperative game )
  4. A seller and buyer keep on disputing the price (Non cooperative Game)
  5. Companies bidding for a contract through tender process ( Non Cooperative Game)

There is a huge requirement of Game Theory experts in corporates and organizations. It is a lucrative and fulfilling career to pursue. Aspiring candidates should be good in English, Economics, Mathematics, Computers and Sociology. This is mandatory to become a successful Game tHeory expert. Doing a doctorate from a prestigious university in Game Theory will ensure a highly paid and prestigious job in big organizations. Game Theory is a prized domain and it will continue to grow and evolve with time.

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