is game theory the right theory?

by smb on November 18, 2008

So you have an idea.

It’s really good.

And you have been refining and perfecting your creation narrative.

Ideas don’t sell themselves.  But now is not the time for platitudes.

Now it’s time for tactics.

It is almost impossible to discuss management strategy, or competitive thinking, without some mention of game theory.  Largely brought to life in the 1950′s, the economic analysis advanced by John von Neumann and Oskar Morgenstern has been expanded to address a myriad of scenarios including economics, biology, sociology and psychology.

The most commonly understood game structure is the zero sum game.  Simply put, the zero sum game means that what ever gains the winner makes, is at the cost of the loser.  Zero sum has a brutal, and absolute symmetry that seems to offer little in terms of human kindness or compassion.

And it’s the zero sum that gives game theory a bad name.  Even though there are dozens of other theory models that involve cooperation, mutual gain and even a few that result in no resolution at all — many managers who are trying to integrate game theory into their analysis stick with zero sum.

The point? It’s a mistake to assume that every game is zero sum.  It’s also a mistake to assume that every game can result in mutual gain.  Strategic thinking only works when you are able to remain open to the possibility that the rules change – often frequently and relentlessly.  When the rules change, so do the possible outcomes.  But there is no possibility of winning, either alone or cooperatively, if you don’t understand the way the game is played.

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