Game Theory Models

Systems explain themselves through the interactions between their elements. This is exactly what happens in social systems, including companies.

Game theory deals with the explanation of interactions, in particular with the question of how decisions are made in interdependence and what effects they achieve. It provides models for one-time and repeated games, for asymmetric information, for signaling games, and for evolutionary games that are suitable for identifying basic patterns in interactions and for systematically evaluating options for action. Therefore, game theory offers itself as a useful discipline both for explaining systems and for systemically meaningful management.

Of interest are decision situations whose outcomes result from interactions with other decision makers, i. e. situations in which the decision of third parties influences the outcome of one’s own decision. Results of such decision situations in interdependencies often turn out surprising because the decision process is unstable. An insufficient understanding of the interrelationships, the opportunistic striving of individual participants for individual advantages, or mistrust repeatedly lead to situations in everyday business life in which no optimum is achieved in the cooperation, although this would in fact be possible.

The instruments of game theory can be an important support both for the understanding and the design of interactions whose results arise in mutual dependence. Especially when designing systemic impact structures in organizations, it is helpful to use game theory approaches to visualize the possibilities for action and their effects against the background of the “big picture” in the circle of all participants. In this way, sensitivity matures for decisions that bring about the best outcome for all those involved.

Read how game theory can help improve outcomes for all stakeholders. Also enrich yourself with useful knowledge about the Nash equilibrium and about Pareto Optimality. Also learn when a dominating strategy is recommended, and when a mixed strategy is recommended.

Also benefit from knowing the key decision principles. Read about John von Neumann’s minimax principle, Laplace's principle, the Regret principle, the Subjective-Expected-Utility Principle, and self-commitment according to Thomas C. Schelling.


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