Game theory seeks to analyse competing situations which arise out of conflicts of interest.
Introduction To Game Theory
Game theory seeks to analyse competing situations
which arise out of conflicts of interest. Abraham Maslow’s hierarchical model
of human needs lays emphasis on fulfilling the basic needs such as food, water,
clothes, shelter, air, safety and security. There is conflict of interest
between animals and plants in the consumption of natural resources. Animals
compete among themselves for securing food. Man competes with animals to earn
his food. A man also competes with another man. In the past, nations waged wars
to expand the territory of their rule. In the present day world, business
organizations compete with each other in getting the market
share. The conflicts of interests of human beings are not confined to the basic
needs alone. Again considering Abraham Maslow’s model of human needs, one can
realize that conflicts also arise due to the higher levels of human needs such
as love, affection, affiliation, recognition, status, dominance, power, esteem,
ego, self-respect, etc. Sometimes one witnesses clashes of ideas of
intellectuals also. Every intelligent and rational participant in a conflict
wants to be a winner but not all participants can be the winners at a time. The
situations of conflict gave birth to Darwin’s theory of the ‘survival of the
fittest’. Nowadays the concepts of conciliation, co-existence, co-operation,
coalition and consensus are gaining ground. Game theory is another tool to
examine situations of conflict so as to identify the courses of action to be
followed and to take appropriate decisions in the long run. Thus this theory
assumes importance from managerial perspectives. The pioneering work on the
theory of games was done by von Neumann and Morgenstern through their
publication entitled ‘The Theory of Games and Economic Behaviour’ and
subsequently the subject was developed by several experts. This theory can
offer valuable guidelines to a manager in ‘strategic management’ which can be
used in the decision making process for merger, take-over, joint venture, etc.
The results obtained by the application of this theory can serve as an early
warning to the top level management in meeting the threats from the competing
business organizations and for the conversion of the internal weaknesses and
external threats into opportunities and strengths, thereby achieving the goal
of maximization of profits. While this theory does not describe any procedure
to play a game, it will enable a participant to select the appropriate
strategies to be followed in the pursuit of his goals. The situation of failure
in a game would activate a participant in the analysis of the relevance of the
existing strategies and lead him to identify better, novel strategies for the
future occasions.
Tags : Operations Management - Game Theory, Goal Programming & Queuing Theory
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