MICROSOFT AND GAME THEORY

Microsoft and Game Theory



Microsoft and Game Theory

Introduction

Game theory is applied mathematics analyzing conflicting interests, assessing gains and losses, and explaining strategic behavior. Game theory can be interpreted literally, viewing conflict as a game with moves and countermoves and aiming to theoretically understand and predict conflict's dynamics. The overriding and necessary assumption of game theory at its most idealistic is that human beings act in rational ways. Economics' model of self-interest is also presumed, specifically, that human beings act rationally to maximize self-interest or reward. Conversely, parties to conflict are presumed to act in ways that minimize risk and cost. Pragmatically, game theory reminds us that parties to conflict have choices. These choices will determine, or at least influence, outcomes. At its most basic, game theory acknowledges parties' interdependence.

Gintis (2000) mentions much research on negotiation has been conducted from the perspective of game theory. Simple distributive bargaining, where parties must somewhere find a compromise or a way to split the difference between offers and demands, predictably emulates game theory (Gintis, 2000). Sophisticated negotiators with little to negotiate, such as the price of a good, will often seek to maximize gain and minimize loss. The distributive dance of concessions results.

Global Critique

More complex circumstances, however, inevitably challenge attempts at prediction. Here, game theory does not readily translate to actual conflict. Critics of game theory face no shortage of evidence to disprove and challenge basic premises. First, as the challenges of quantifying international development exemplify, much escapes simple linear analysis. Although measuring an increase in societal schools may be straightforward, attempting to do the same with that same society's political system raises tough questions. How do we measure, for instance, good governance and democratization in its numerous variables? Quantifying outcomes with complex conflict presents similar challenge and debate. Costs, risks, and benefits are not routinely apparent. How do we even begin quantifying the value of interethnic understanding, for example, even though few would dispute its value (Zeckhauser, Keeney & Sebenius, 1996).

Most conflict, as it is practiced, cannot be equated with chess or any model of rationality. If only genius and years of mastery could result in knowledge of all available options, or moves and countermoves, in our most intractable conflicts, elementary game theory would lead to utopia. Yet human beings, particularly those from diverse and dynamic cultures, inevitably defy prediction.

Microsoft and Game Theory

Shapiro and Varian (1999) mention when Microsoft announced its intention to acquire Yahoo last February, the software giant knew the struggling search firm would not come easily into the fold. But Microsoft had anticipated the eventual minuet of offer and counteroffer five months before its announcement, thanks to the powers of game theory.

A mathematical method of analyzing game-playing strategies, game theory is catching on with corporate planners, enabling them to test their moves against the possible responses of their competitors. Its origins trace as far back as The Art of War, the unlikely management best-seller penned 2,500 years ago by the Chinese general Sun ...