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Is Game Theory Successful in Business?

Game Theory image by Todd Huffman [cc, 2.0]Game theorists are riding high on the wave of the post-Beautiful Mind furor; and they might be riding the wave for quite a while... In political predictions, game theorists can expect a 90% success rate, but is game theory applicable to business? McKinsey, IBM, Chevron, Ford, Xerox, Caterpillar and Boeing seem to think so; in fact, one Canadian consultancy specializing only in game theory lists five of the top ten Fortune 500 companies on its client roster.

Still, there is a widespread stigma attached to game theory. Some see it as "decision-making wrapped in a shiny wrapper"; others think it the corporate equivalent of a Ouija board. Most analysts say it's useful only in certain situations -- forecasting business conflicts and mapping out negotiations, for example.

Much of the promise game theory holds is yet to be realized. Up until the 1980s, making a prediction relied on human calculation and judgment to weigh the different permutations of the matrices. Now computer models can work out incredibly complex algorithms to further refine predictions, and game theory can easily get complex. For example, when eight business competitors consider three separate strategic options there are a potential 16,777,236 outcomes; game theorists are tasked with reducing that number to one.

Game Theory image by Todd Huffman [cc, 2.0]

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