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1. Game Theory
Based on Brandenburger and Nalebuff s article, "The Right Game: Use Game
Theory to Shape Strategy," describe and analyze the essential elements
of game theory. Explain which two economic structures might engage in game theor
y and which two will not.
2. Strategy Traps
In Brandenburger and Nalebuff s article, "The Right Game: Use Game Theory
to Shape Strategy," the authors describe five traps of strategy. Selec
t any one of the five and provide a real world example of an organization fallin
g victim to that trap.
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WHAT US GAME THEORY?DESCRIPTION
Game theory is a special branch of mathematics which has been developed for stud
ying decision-making in complex cirscumtances. Game theory tries to predict outc
omes based on interactive models in which the desicions of the party affect the
decisions of the other parties. The meaning of "Game" here is: a move by one pla
ter will result in moves of others. The idea historically dates back to the Talm
ud and Sun Tzu;s writings. However, the contemporary codification is attributed
to John von Neumann and Oskar Morgenstern. They published the Theory of Games an
d Economic Behavior in 1944. In the early 1950's, John Nash generalized thier re
sults and provided the basis of the modern field of Game Thoery. A rapid rise i
n theoretical developements led to the founding of the first academic magazine d
evoted to the field by Oskar Morgenstern in 1972. Few corporations nowadays thin
k about thier strategy without adding some game theory models or game elements i
nto thier strategy process.
Game thoery can be defined as the study of how people interact and make decision
s. This broad defintion applied to most of the socual sciences, but game thoery
applies to mathematical models to this interaction under the assumption that eac
h person's behaviour impacts the welll-being of all other participants in the ga
me. These models are often quite simplified abstractions of real-world interacti
ons. while many fame theorists cetainly enjoy playing games, a "game" is an abst
ract reporesentation of many serious situations and has a serious purpose.
USAGE OF GAME THEORY.APPLICATIONS
--Preparing business negotiations
--Analyzing future market conditions
--Strategic decision-making
--Assess the viability of a new venture,bussiness model, program, prokect, produ
ct, service, or technology.
ASSUMPTIONS IN GAME THEORY
A major issue with game thoery is:it is necessary to make assumptions. Any model
of the real world must make assumptions that simplify the reality,because the r
eal world is to complex to anslyze with any precision. There is a constant trade
off between realism and the technical capability to solve problems. Even if one
could write down a model that accurately describes how people make decisions in
general, no amount of computers would be alue to calculate it.
What assumptions are made normally? The usual assumptions are:
--Rationality: People take whatever actions are likely to male them more happy.
And they know what makes them happy.
--Common knowledge. We kwno that everyone is trying to make himself as happy as