# Decision Making Using Game Theory: An Introduction for Managers

## Synopsis

Game theory is a key element in most decision making processes involving two or more people or organizations. This book explains how game theory can predict the outcome of complex decision making processes, and how it can help to improve negotiation and decision-making skills. It is grounded in well-established theory, yet the wide-ranging international examples used to illustrate its application offer a fresh approach to what is becoming an essential weapon in the armory of the informed manager. The book is accessibly written, explaining in simple terms the underlying mathematics behind games of skill. It analyzes more sophisticated topics such as zero-sum games, mixed-motive games, and multi-person games, coalitions and power. Clear examples and helpful diagrams are used throughout, and the mathematics is kept to a minimum. Written for managers, students and decision-makers in every field.

## Excerpt

Man is a gaming animal. He must always be trying to get the better in something or other.

Charles Lamb 1775–1834 'Essays of Elia'

Game theory is the theory of independent and interdependent decision making. It is concerned with decision making in organisations where the outcome depends on the decisions of two or more autonomous players, one of which may be nature itself, and where no single decision maker has full control over the outcomes. Obviously, games like chess and bridge fall within the ambit of game theory, but so do many other social situations which are not commonly regarded as games in the everyday sense of the word.

Classical models fail to deal with interdependent decision making because they treat players as inanimate subjects. They are cause and effect models that neglect the fact that people make decisions that are consciously influenced by what others decide. A game theory model, on the other hand, is constructed around the strategic choices available to players, where the preferred outcomes are clearly defined and known.

Consider the following situation. Two cyclists are going in opposite directions along a narrow path. They are due to collide and it is in both their interests to avoid such a collision. Each has three strategies: move to the right; move to the left; or maintain direction. Obviously, the outcome depends on the decisions of both cyclists and their interests coincide exactly. This is a fully cooperative game and the players need to signal their intentions to one other.

However, sometimes the interests of players can be completely opposed. Say, for example, that a number of retail outlets are each . . .

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