Use of Game Theory in Business

Use of Game Theory in Business

Introduction

Businesses as early as in the early 1980s began to use information technology, after 20 years of development; the global use of information systems to achieve efficiency has increased significantly. These systems continue to support the planning of organizations intelligent and digital advancements. The application of these systems have gradually improved in depth and become functional and sophisticated. If one is familiar with the application of information system in organizations, then while planning business one must understand and master the system new features. Units and individuals learn how to achieve a win-win situation in training by using the game theory in businesses (Thie & Keough, 2011).

Game Theory Overview

Game theory is based on a mathematical language and behavior conflict of interest that exists in stories carried specification descriptions. A game consists of four basic elements of composition, they are: game players, game rules, game effectiveness, and game outcome (Thie & Keough, 2011).

Game players is a game opponent's behavior can be incorporated into their own behavior in the selection process of the subject. Rules of the game are made specifically on how to conduct a complete definition. Game outcome refers to the rules that allow all actions to be completed to reach the final outcome (Ott, 2012). The participants in the game take a different action and would result in different game endings. The game utility is assumed that all possible outcomes of the game under each participant received a different game ending. This utility can be expressed in different functions, and game players will often choose the most effective outcome on their own to determine their own behavior.

Game of various outcomes are based on two key assumptions basis; an assumption of rationality, the other is the common understanding of the assumptions. Rationality assumption means that players are able to correctly calculate the behavior of a variety of different combinations that will bring about a kind of outcome and always use their own utility to maximization behavior. The common understanding is assumed that each participant is aware of the information (Chatain, 2013).

Game Theory and Businesses

The Game Theory has emerged as a field of applied mathematics, and since the 40s, is being used as a tool for studies in Economics "strategy." Among the basic tenets of game theory is the ability to predict the movement of other players, competitors or allies, and position themselves strategically in order to maximize the return of utility and reach a predetermined goal.

In the business world, there is a competitive game in which players are businesses. The strategies are the movements of companies seeking success through the benefits and premiums (payoff's) resulting from each chain movements. The existence of this "game" seems to indicate that game theory can effectively contribute to business management (Hatfield, 2012.

Michael Porter developed throughout his work, a methodology for analyzing industries and competition, which is a central reference in the study of the strategic management of ...