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What is game theory?

What is game theory – and what can it do for businesses?

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’.

The methodology allows to analyse the underlying structure of the interaction and the incentives of the players involved. Based on such a game-theoretical analysis, businesses can derive recommendations to improve their business decisions in all most all areas, including:

  • The optimisation of the top & bottom line in Procurement or Sales
  • Market entry and divestment decisions
  • The purchase or sale of assets and business units
  • The licensing of IP rights

By using game theory, decisions become more successful and less risky. With 18 years of experience and more than 70 game theory experts, TWS Partners is the renown market-leader for commercial applications of game theory with their award-winning methodology and recognised for their thought-leadership.