What is the Game Theory and How do Businesses Use it?

The Game Theory was formulated back in the 1950s. It is also one of the most followed and practised formats in recent times too.  In simple terms, game theory is the study of mathematical models of deliberate relations between two business partners or any rational decision makers. A lot of companies make use of this strategic analysis in their business to keep up their ventures in a successive continuation. This model of business strategy is applied in a lot of fields like social science, biology, computer science etc. Game theory has it implications in not just subjects but also in human behavioural relations.

The strategic games that happen between two
players in different companies: the games are just mathematical scenarios. The
games ascertain the logical decisions that the players should adopt to reap
good benefits. This is actually a powerful tool that probes the company to
predict better outcomes. The participants need to have a clear idea about the
needs and functions of the other as this is a complex arrangement that one
decision could affect the other in a huge way. There needs to have an
understanding between the two companies. Both the parties will look into the
strategy of others and the understanding between the two while taking into the
account of payoffs; it will help to formulate an optimal strategy.

Game Theory utilizes the strategic
calculations through some social or individual models. When analysing the
behaviour of the firm, a thoughtful and logical understanding could be reached
about their strategic choice that is laid bare to them. They will have the
option to raise the money or bring it lower or even holding it still. The
theory formulates whether their production should be paused or develop new
products. The Game Theory also formulates an idea about what to do about the
promotional aspect of the product: whether more money should be used for
advertising or spending less on them or even sparing anything at all. The
options and choices are many and a final decision can be approached when the
strategic dialogue will be over. The possible payoffs would be like more
profits for the shareholders, greater market share or even eliminating a
possible rival.

In proper truth, no two companies trust the
other no matter what the consequences are. Game Theory suggests this nature of
the companies too. The Theory is also helpful to the managers of the firms to
understand the expected positive and negative payoffs. Adopting this way would
possibly reduce business risks and also gain a strategic idea about the other
firms while keeping in tab with their own shortcomings. Gaining an insight into
their own business will prompt them to think deep and intense. More sensible
decisions will be made and firm will slowly recuperate if there were any
downfall.

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