How to Shape Winning Business Strategies With Game Theory

Game theory allows people to determine the best course of action in situations where the outcomes of several "players" are involved. Many scientists, economists and other professionals studying game theory have been awarded Nobel prizes. Even though the principles of game theory use advanced mechanics, you can use simplified versions of these principles to shape many winning business strategies.

• 1

  Find a game theory activity that best fits the description of the situation for which you want to develop a strategy. For example, if you invest in a physical plot of land with four other investors, you may want to use the game "Diner's Dilemma," which involves working to obtain a larger-than-equal share off an equal investment.

• 2

  Assign "positions" for each game using your real business competitors and cooperators. To continue the example of "Diner's Dilemma," you choose to assign the position of "diner" to each of the investors.

• 3

  Apply the mechanics of game strategy to your business situation. Each game has a dilemma, an outcome based on two or more different actions, and the best course of action for the outcome.

  In "Diner's Dilemma," the point of the game is to obtain the largest value from the smallest input. Unfortunately, you may assume that each person in the game attempts to receive the same large output to small input. In this case, you realize, through game research, that one position at the table has the most power to receive the largest benefit-to-cost ratio: the last person to order. As the last person to order, you can determine the ratio of benefit to cost (which should exceed one) for splitting the bill and the ratio of benefit to cost for individual payment.

• 4

  Create a business action to best use game theory from your chosen game.

  In the case of "Diner's Dilemma," you decide that the last position to order has the power to determine the maximum benefit-to-cost output. Therefore, you create a business strategy to always "sit" in the final position of ordering. This means, when creating a partnership investment deal, you make your benefit demands last. For example, in an investment partnership to equally pay for land, you, as the last person "ordering," choose the area that provides the most benefit.