Hi,
Game theory is a distinct and interdisciplinary approach to the study
of human behavior.
There are two branches of game theory cooperative and non-cooperative
game theory. Non-cooperative game theory deals largely with how
intelligent individuals interact with one another in an effort to
achieve their own goals. This side of the study is based on the
premise that people will try to act in their own best interests most
of the time. You are aware of the prisoner's dilemma; the idea here is
even if the two do not take the best route they will eventually work
towards the best route after a few cycles.
What is Game Theory
http://levine.sscnet.ucla.edu/general/whatis.htm
In Games Arising from Combinatorial Optimization Problems by Imma
Curiel, University of Maryland Baltimore County, USA THEORY AND
DECISION LIBRARY C: 16 March 1997 Hardbound 200 pp. ISBN 0-7923-4476-6
Abstract at : [pdf] http://www.neutrino.co.jp/abi_tdlc/0-7923-4476-6.PDF
says this :
...It is well known that the mathematical modeling of various
real-world decision-making situations gives rise to combinatorial
optimization problems. For situations where more than one
decision-maker is involved classical combinatorial optimization theory
does not suffice and it is here that cooperative game theory can make
an important contribution. If a group of decision-makers decide to
undertake a project together in order to increase the total revenue or
decrease the total costs, they face two problems. The first one is how
to execute the project in an optimal way so as to increase revenue.
The second one is how to divide the revenue attained among the
participants. It is with this second problem that cooperative game
theory can help. The solution concepts from cooperative game theory
can be applied to arrive at revenue allocation schemes.
--------
Game theory focuses on the description of the actions and then the
prediction of the actions by the players. In A course in game theory
by Martin J. Osborne and Ariel Rubinstein (MIT Press, 1994). it is
described as :
Game theory is a bag of analytical tools designed to help us
understand the phenomena that we observe when decision-makers
interact. The basic assumptions that underlie the theory are that
decision-makers pursue well-defined exogenous objectives (they are
rational) and take into account their knowledge or expectations of
other decision-makers' behavior (they reason strategically).
The models of game theory are highly abstract representations of
classes of real-life situations. Their abstractness allows them to be
used to study a wide range of phenomena. For example, the theory of
Nash equilibrium has been used to study oligopolistic and political
competition. The theory of mixed strategy equilibrium has been used to
explain the distributions of tongue length in bees and tube length in
flowers. The theory of repeated games has been used to illuminate
social phenomena like threats and promises. The theory of the core
reveals a sense in which the outcome of trading under a price system
is stable in an economy that contains many agents.
http://www.chass.utoronto.ca/~osborne/GAMETH.HTM
This page goes on to say :
To clarify further the nature of game theory, it may be contrasted
with the theory of competitive equilibrium that is used in economics.
Game theoretic reasoning takes into account the attempts by each
decision-maker to obtain, prior to making his decision, information
about the other players' behavior, while competitive reasoning assumes
that each agent is interested only in some environmental parameters
(such as prices), even though these parameters are determined by the
actions of all agents.
To illustrate the difference between the theories, consider an
environment in which the level of some activity (like fishing) of each
agent depends on the level of pollution, which in turn depends on the
levels of the agents' activities. In a competitive analysis of this
situation we look for a level of pollution consistent with the actions
that the agents take when each of them regards this level as given. By
contrast, in a game theoretic analysis of the situation we require
that each agent's action be optimal given the agent's expectation of
the pollution created by the combination of his action and all the
other agents' actions.
-----------
In game theory, "games" have always been a metaphor for more serious
interactions in human society. Game theory may be about poker and
baseball, but it is not about chess, and it is about such serious
interactions as market competition, arms races and environmental
pollution. But game theory addresses the serious interactions using
the metaphor of a game: in these serious interactions, as in games,
the individual's choice is essentially a choice of a strategy, and the
outcome of the interaction depends on the strategies chosen by each of
the participants. On this interpretation, a study of games may indeed
tell us something about serious interactions.
Links of interest
History of Game Theory
http://william-king.www.drexel.edu/top/class/histf.html
0-500AD
The Babylonian Talmud is the compilation of ancient law and tradition
set down during the first five centuries A.D. which serves as the
basis of Jewish religious, criminal and civil law. One problem
discussed in the Talmud is the so called marriage contract problem: a
man has three wives whose marriage contracts specify that in the case
of this death they receive 100, 200 and 300 respectively. The Talmud
gives apparently contradictory recommendations. Where the man dies
leaving an estate of only 100, the Talmud recommends equal division.
However, if the estate is worth 300 it recommends proportional
division (50,100,150), while for an estate of 200, its recommendation
of (50,75,75) is a complete mystery. This particular Mishna has
baffled Talmudic scholars for two millennia. In 1985, it was
recognized that the Talmud anticipates the modern theory of
cooperative games. Each solution corresponds to the nucleolus of an
appropriately defined game...... more included on page
Game Theory and games
http://www.envf.port.ac.uk/illustration/images/vlsh/games/game.htm
Game theory is a method for the study of decision making in situations
of conflict. It deals with human processes in which the individual
decision unit is not in complete control of other decision units
entering into the environment. It is addressed to problems involving
conflict, cooperation, or both, at many levels. The decision unit may
be an individual, a group, a formal or an informal organisation, or a
society. The stage may be set to reflect primarily political,
psychological, sociological, economic, or other aspects of human
affairs.
Seville Game Theory Group
http://www.esi2.us.es/~mbilbao/sevigame.htm
Game Theory
http://www.vanderbilt.edu/~rtucker/methods/game_theory/
Game Theory (another resource page)
http://www.econ.umn.edu/~czheng/f96_5107h/games.htm
Game Theory And the Humanities
http://members.aol.com/Altdisres/Analysis.html
Thanks,
webadept-ga |
Request for Answer Clarification by
lfobarri-ga
on
20 Nov 2002 20:49 PST
Dear Webadept, thanks for your answer.
However, it seems that you cover the concept of game theory,
definitions, history, modeling, etc.
I was expecting more deep toughts in my specific question (please
refer to it again), about the difference between:
- describing behaviors (people act and theory models the actions)and
- changing behaviors (once people study game theory, they act
differently to have competitive advantage)
In summary, which point of view is more correct and how managers
should face it in practice?
|
Clarification of Answer by
webadept-ga
on
20 Nov 2002 22:08 PST
Hi again,
Sorry that there seemed to be some confusion as to the answer. My
answer (and the definition of Game Theory) is your first line
"- is a theory that explains how people normally behave in competitive
situations (ie, explain a phenomenon), ..."
Game theory takes into account on several levels that the players are
acting on strategy and knowledge. In fact it takes into account that
you study game theory. It wouldn't be much good if it operated inside
a vacuum.
Do individuals change after studying Game Theory, most certainly, but
they also change when they learn any new skill or set of strategies.
Will they use new tactics and have better effects now that their level
of play has increased? Again, the probability of this is rather high,
but the study of this is what Game Theory is; to put it another way,
your question is a Game Theory type of question. It is asking if a set
of variables change in a small group of the player population, if the
balance of the game is now altered enough to affect a real change in
strategy from the rest of the players?
Using game theory for business strategy
http://www.leadingresearch.hbs.edu/archives/02.01/story03.html
According to Ghemawat, "Game theory is basically the study of
intelligent decision-making in situations where your payoffs depend
not just on what you do but on what others do."
While game theory has already gained a solid following among
industrial organization economists, business strategists continue to
debate its usefulness in their field because of a limited amount of
relevant empirical research. In addition, it still suffers from a
general lack of awareness among managers. Ghemawat helps resolve these
shortcomings in his book by showing the use of game theory in a series
of business dilemmas described in detailed longitudinal case studies
that span diverse industries. "Cases have long been central to
management education," he says, "but they have been used less
frequently as an integral part of business research. In fact, they
provide an excellent means of confronting game theory with the real
world."
Whether or not game theory has applications for business strategy
remains unclear - to date, empirical studies have been too limited to
yield any definitive conclusions. In Games Businesses Play: Cases and
Modules, HBS professor Pankaj Ghemawat addresses this knowledge gap,
using detailed, longitudinal analyses of competitive interaction to
explore the uses and limits of game theory as a tool for students of
business strategy.
As a basis for research as well as a source of teaching materials,
Ghemawat focuses on individual cases. He pairs each with a customized
game-theoretical model, an approach that presents a wide array of
commitment decisions. He analyzes the match between case outcomes and
model predications both qualitatively and quantitatively.
The case method offers clues about how to refine existing theory. In
addition to helping with theory development, the cases also illustrate
the ways in which game theory can help explain actual patterns of
interaction.
Professor Pankaj Ghemawat, is the head of Competition and Strategy
Unit's required course at Harvard Business School, focuses on
strategic commitments - decisions that involve significant amounts of
irreversibility, such as entry into new markets, exit from old ones,
capacity expansion, and product and process innovation. Ghemawat is
the author of a widely cited book, Commitment, as well as seminal
articles on the sustainability of competitive advantage. His latest
book, Games Businesses Play, has recently been released. Along with a
number of colleagues, he has also begun looking at how competitive
shocks affect industry structure and business strategy in emerging
markets.
So, to your part of the question, will a manager studying this really
have an advantage in his performance in the business world, the answer
is, "we don't know at this time."
Thanks,
webadept-ga
|
