Discuss the theme behind the game theory. Discuss the principles associated with this theory, as well as, how the classical game theory can be contained. Does the game theory in your opinion support the corporate’s strategy? When should the prisoner dilemma be used? Include a minimum of one reference.
Peer 1:
This week we are discussing game theory, something I had never heard about before this class. Game theory is used in many ways to help a company choose it’s strategies for business decisions. Game theory suggests that there are multiple players and that decisions are based off of knowledge of what each player may decide and the effect it would have on the others. It looks at what will happen when players cooperate with eachother as well as what happens when they stop cooperating and look out for their own interests.
In my opinion game theory can definitely be used in business to support strategies especially when looking at expanding business or movinginto a new type of market.
Prisoner dilemma is when there are two players and each player has two scenarios, one that is cooperative and one that is self serving. Neither player is aware of the other’s plan and if they do not cooperate then both can be impacted negatively. The prisoner’s dilemma game can be used when comparing employer and employee in the area of job security, efforts, and compensation(Smith, 2000). An employee can choose to be highly productive or not and the employer can choose to provide job security and wages based off of the efforts. If the employer doesn’t choose to provide security and wages to match the efforts, then the employee may choose to put in less time and effort. That is not good for either player. If both choose to cooperate then the employer will be successful and the employee should have job security and potentially even better wages as the company becomes more and more successful(Smith, 2000).
Smith, M. R. (2000). On the use of the prisoners’ dilemma to analyze the relations between employment, security… Review of Social Economy, 58(2), 154. https://doi.org/10.1080/003467600402521
Peer 2:
Game theory provides insight into human behavior, as it can help predict what individuals will do when rewards and punishments are involved. Game theory is a strategy and principle in which multiple participants are involved. In this theory, everything is not just dependent on one person. Consider New Years resolutions. One of the most common resolutions made at the beginning of each year is to lose weight, eat healthier, and get in shape. People meet (or do not meet) this goal by training, changing habits, etc. The result of doing this, the meeting or not meeting of the goal, is a non-example of game theory because this scenario is dependent on the one person making the resolution; there are no other participants affecting the outcome. On the other hand, an example of game theory would be the game of chess. As a person plays chess against another participant, what that participant does during each of their turns affects the outcome. Similarly, when three different stores sell a product, game theory is involved. If one store were to mark down the price, that then affects what the other stores must do in order to maintain sales. Businesses and organizations should consider and utilitize game theory in their dealings and decisions in order to ensure that they are making the wisest and most efficient choices. According to Goldman and Papyoanou (2003), there are three steps to utilizing strategic gaming in corporate decisions. “First, frame the problem; map out the key players and their choices, in sequence, to view the structure of the situation. Next, evaluate the choices: bring payoffs and uncertainties into the analysis so you can gain deeper insights into the likely actions of each player. Finally, develop an execution plan: construct a dynamic roadmap to shape and play the game as it unfolds”(Goldman and Papayoanou, 2003).
The Prisoner’s Dilemma describes a situation in which two individuals are presented with different options that provide either rewards or punishments. In this dilemma, the individuals choose the option that provides them with the least amount of punishment or the highest amount of reward. However, because both parties choose this, they both end up with a less favorable outcome. It is important to keep this principle in mind when negotiating with another party. Oftentimes, cooperation instead of working out of one’s best interest provides a more favorable option .
Goldman, J., & Papayoanou, P. (2003). Shaping Winning Business Strategies With Game Theory. Financial Executive, 19(2), 70–71.
