Applied Game Theory in Business Analytics

Conflict has been a central theme in human history. Conflict arises when two or more individuals with different views, goals, or aspirations compete to control the course of future events. Game theory studies competition. It uses mathematics and mathematical tools to study situations in which rational players are involved in conflict both with and without cooperation. According to Weins (2003), game theory studies situations in which parties compete, and also possibly cooperate, to influence the outcome of the parties’ interaction to each party’s advantage. The situation involves conflict between the participants called players because some outcomes favor one player at the possible expense of the other players. What each player obtains from a particular outcome is called the player’s pay-off. Each player can choose among a number of strategies to influence his pay-off. However, each player’s pay-off depends on the other players’ choices. According to Straffin (2004) rational players desire to maximize their own payoffs. Game theory is a branch of applied mathematics that is used in the social sciences (most notably in economics), business, biology, decision sciences, engineering, political science, international relations, operations research, applied mathematics, computer science, and philosophy. Game theory mathematically captures behavior in strategic situations in which an individual’s success in making choices depends on the choices of others. Although initially developed to analyze competitions in which one individual does better at another’s expense, game theory has grown to treat a wide class of interactions among players in competition. Explanation of Game Theory Features