Game theory is a tool in Economics that helps you understand decision-making. Using game theory one can determine the logical and mathematical actions of players and how they must secure the best possible outcomes. It is also used by political analysts, economists, and theorists to speculate a number of things.
Game theory is used by businesses these days to understand the mindset of customers and to determine real-life strategies and solutions. It has become a strong device of performance to predict the various moves of a company or an individual.
It is a method of analyzing competitive situations and suggesting the various criteria associated with a person’s decision where the outcome is based on other participants’ actions. The theory is useful in behaving strategically and taking account of others’ probabilities.
Eyal Dror Consulting specializes in powerful tactics and provides secured solutions to analyze, measure, and accurately execute all negotiations with optimal advantages.
Understanding Game Theory in layman’s terms
In simple terms, one can use game theory to understand the right choice they need to make in a competition with another. These approaches are essential for companies and industries of any size to interpret strong strategic interaction between two or more entities or actors.
Game theory is applied in innumerable circumstances. The more you theorize with your business prospect, the better you could anticipate between two likely outcomes based on the action. The key advantages of planning with game theory in your business are – perfect product placement, the right quantity to produce, and much more.
Our Game theory experts can help you gain a higher position in the market and surprise your competitors with unexpected moves.
3 essential strategies of Video Game Economics for businesses
1. The Centipede Game: This requires two-player participation where they either leave or take a sum increasing in chronological turns. The players are supposed to trust each other and keep passing the sum, for the amount to keep increasing and whoever wins will receive the total amount at the end of the game.
Also, if one of the players chooses to take the sum, then both will end up having less than they would have made. In businesses, a company participating in this game must put aside their own interest at the current stage in order to win the game at last.
2. The dictator game: This is also a two-player game where both would split the sum without one of them influencing the other. This tells you a lot about a company’s or the entity’s behavior changes and the decisions that they are making.
Research shows that 50% of the players keep the money, 45% give the other player a small share and only 5% split the sum equally. The only catch here is if the second participant rejects or denies the offer made by the first, then both end up getting nothing. Businesses learn a lot from this game as it sheds light on issues with charity and philanthropy.
3. The Prisoners’ Dilemma: A game of two participants i.e. prisoners who are separated from each other, questioned to confess a crime that they might have mutually committed. They are scenarios where both can confess, none can confess or one can confess.
The outcomes of their decisions will be completely different. Also, this game shows how players think and strategize out of their self-interest, leading to the outcome from both sides or parties.
It plays a huge role in businesses where companies use strategic thinking based on this situation while competing with each other. Whether it is your products or services, you will be able to apply significant effort into your planning and collectively it is a competitive advantage for you.
How businesses achieve long-term benefits through Game Economics
Helps you save during a car purchase: Yes, with game theory one can buy a car at a much lesser price. First, you need to call all the listed dealerships and offer to buy the car at a certain time, having the dealer quote a lower price.
The next step is to negotiate over the phone which you will insist on because your suggestion would point out that all negotiations happen the best over the phone. Following this, he will try to settle for a lower price compared to the other dealers and that’s how you will be able to finalize the deal.
Real Estate deals: As you would gather, game theory and economics are very much present in real estate negotiations. Agents in real estate sure know how to make the right moves as they are previously understood with clear goals to make negotiations work in their own favor.
A good way to go is to keep your offer intact, offer a higher figure, or simply withdraw your offer. However, the winner needs to overbid your offer and the latter decision is important to win. So, you should bid the exact figure that you have determined to win the bid.
Even if anyone overbids you, you must accept that you did right by calculating and making the most favorable decision. Therefore, even the loss would show that you did not make any incorrect moves or decisions in the negotiations.
Poker Strategy: Game theory solutions are an invaluable tool for poker players as bluffing is applied throughout the game at a frequent pace.
Firstly, make sure the odds you get are equal to those of your opponent and with the correct odds, one can take any decision to their advantage against their opponent.
The best decision according to game theorists is to play your hand with the best chances. While there are other factors in the game and you may lose with the best odds too, you should always depend on the best decisions utilizing calculated effort.
With recent developments in E-commerce, trade, and production, Game Theory has succeeded with its cohesive factors connecting world audiences to businesses and bringing transparency in transactions. Hence, If you are concerned about reactions from your trade unions, customers, investors, employees, and rivals, Eyal Dror Consulting has the best anticipatory clarifications for you to make the right move. Stop losing and start winning! Contact us now!