The 2005 Nobel Prize in Economics has been awarded Robert J. Aumann, Center for Rationality, Hebrew University of Jerusalem, Jerusalem, Israel and Thomas C. Schelling, Department of Economics and School of Public Policy, University of Maryland College Park, MD, USA "for having enhanced our understanding of conflict and cooperation through game-theory analysis".
Game theory in this particular case is related to analyses of conflict and cooperation, developing non-cooperative game theory to work on major questions in the social sciences. Although game theory in its original form is a highly mathematical exercise, "game theory provides a better framework for assessing the risks and opportunities involved in any major strategic move" as McKinsey Quarterly so business-like puts it.
I would say that innovation and especially innovation strategy could be labelled a "major strategic move" so can the work of innovation learn anything from or even better include tools and methods within it´s process of game theory? When deciding what innovation strategy to embark on (or frame to create) the study of "choice of optimal behavior when costs and benefits of each option are not fixed, but depend upon the choices of other individuals (or corporations)" as noted on wikipedia could mean the difference, i guess.
As the McKinsey Quarterly also points out, the game does not have to be played to the (bitter) end with all the alternatives calculated in detail to make sense in a business environment. The mere discussion and the options/challenges/scenarios that it presents, creates a shared view of the potential futures so that the company can include these scenarios in the innovation work .
Have you used game theory in practise in your innovation work? What is your experiences with it?
3 comments so far
Game theory has been around since the 1930s. Although the underlying methodology is mathematical, game theory is widely used in many different fields including biology, computer science, economics, philosophy, and political science and now business strategy.
Game theory studies decisions that are made in an environment where various players interact. In other words, game theory studies choice of optimal behavior when costs and benefits of each option are not fixed, but depend upon the behavior and choices of other individuals.
Game theory was also the essential dynamic in the Cold War theory of Mutually Assured Destruction. In this last regard it seems to have worked-the last I remember the former Soviet Union and the USA did not drop the big one on each other as they had a balance of nuclear weaponry assuring the destruction of each other if one of the two did the first nasty thing. When one has a significant advantage over one another that when the problems can happen. This is essentially the problem if the USA develops atmospheric missile shield/protection from anyone who sends a nuclear weapon in their direction. The theory of Mutually Assured Destruction is then out the window as things are now uneven. A new game would need to be developed. Some people claim this could lead to another arms build up to even things off to take the USA advantage off the table.
I have used this theory more as an Organizational Development (OD) concept never explained but experienced (and debriefed). People get confused and turned off when trying to explain the theory and fall asleep if you go into the mathematical probabilities. The granddaddy of all the OD type of experiences is the Prisoners Dilemma. Others include Textile Trading and Red/Black. Google “Prisoners Dilemma” and you get plenty of information. Let people generate the theory from shared experiences rather than explicitly using this exotic Nobel Prize winning theory. We don’t all have a Beautiful Mind.(John Nash the father of modern game theory, a 1994 Nobel Prize winner and the subject of the 2001 Oscar winning movie a Beautiful Mind).
Maybe it is just my consulting clients but the practice of game theory is a real turn on, the explanation is usually a real snooze. You could also use it as a competitive dynamic in terms of developing strategy. In terms of innovation when the dynamic in a company requires some resolution between the cooperation and competition it could be very useful.
The book Coopetition (Brandenburger, Nalebuff) is a business book about game theory. Below is a quote from Amazon about this book. You may find some useful ideas in this best selling business book.
“Losing and winning are two extremes by which businesses are often measured. Brandenburger (Harvard Business Sch.) and Nalebuff (Yale Sch. of Management) argue that most businesses and their transactions lie somewhere between the two poles. Their liberating message is that your competitor does not have to fail for you to win. Conversely, you don’t have to fail either. Your failure, in fact, can hurt your competitor. It is better, the authors assert, to have both cooperation and competition. Game theory requires drawing a representation of one’s customers, suppliers, competitors, and complementers. In this strategy of business as a game, the rules, players, tactics, and scope can be changed to the individual’s advantage. The authors present complicated cases to illustrate their points.”
Hope you find this helpful
Hi Gerry,
Thanks for a very, very inspiring comment! To sum up your key message (and see if I got it right):
Using the idea behind game theory can be rewarding and inspiring i.e. “let people generate the theory from shared experiences”
but dont go into an explanation of the theory (it´s just dull in a business setting.
I´ll take a look at Coopetition more on how game theory can be used practical in business.
Regards,
Magnus
You got it right. See below websites related to the prisoner’s dilemma. The last one has you playing this game on the web. If interested I could send you the Black/Red game which is engaging and simpler.
http://pespmc1.vub.ac.be/PRISDIL.html