Game theory is a Nobel Prize-winning branch of economics. It is the scientific modelling of interactions (‘games’) between different parties (‘players’), each pursuing their own interests. The players interact and choose their actions mindful of what the other players might think and do.
The application of game theory in business is twofold:
Firstly, game theory can be used to ‘play the game better than the other side’. It is a method for understanding the ‘rules’ of a game (e.g. a negotiation), and for finding the optimal strategy in a given stetting.
Secondly, game theory can help to structure and shape interactions with a view to steer and influence the behaviour of other players towards a desirable outcome. Thus, game theory helps to ‘change the game that’s played’.