Article: Game Theory

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Game Theory

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A game is a description of strategic interactions that includes the constraints on the action players can take and the players interest, but does not specify the actions the players do take. A solution is a systematic description of the outcomes that may emerge in a family of games.


Game theory may be defined as "a bag of analytical tools that help us to understand the phenomena when decision makers interact. The basic assumption underlying this concept is that decision makers pursue well defined exogenous objectives and take into account their knowledge or expectations of other decision makers behavior". In other words, Game theory suggests reasonable solutions for classes of games and examines their properties. [1]


Business Strategy and Game Theory

Many business strategy decisions involve interdependent outcomes, game theory would seem to apply to business strategy. Perhaps, the only setting in which game theory should not apply is perfect competition, the limiting case in which firms are tool small (or know too little) to measure their impact on others and the impact of others on them. While some strategy decisions in business might fit the limiting case, but most do come under a broader purview of game theory. [2]

Relevance to software business

Game theory concept has major implications on the Software Outsourcing industry, for example, on Client – Vendor relationships in offshore software outsourcing.[3]

Related Readings

  • FUDENBERG, D. and TIROLE, J., 1991. Game Theory. Mit Press.

Links


References

  1. ↑ Osborne, M.J. & Rubinstein, A. 1994, A Course in Game Theory, MIT Press
  2. ↑ CAMERER, C.F., 1991. Does strategy research need game theory. Strategic Management Journal, 12(Special Issue on Fundamental Research Issues in Strategy and Economics), pp. 137-152.
  3. ↑ OZA, N.V., 2006. Game theory perspectives on client: vendor relationships in offshore software outsourcing, Proceedings of the 2006 international workshop on Economics driven software engineering research, 2006, ACM New York, NY, USA pp49-54.
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