Game theory is a crucial approach used in decision making, in organizations; the theory underpins some vital aspects of decision making in business. The game theory is based on the development of appropriate strategies, which will lead to sound business decisions.
With the use of game theory, organizations can come up with logical interpretations of various situations to establish the most suitable outcomes in situations where decisions have to be made.
From a wide variety of solutions (games), organizations have an opportunity to choose the decision that bests suits a certain situation. While using the game theory in decision making, the main focus is the “game”, which represents a model that can be regarded as formal in a situation where there is interaction (Kelly, 2004).
Decision making using the game theory entails the involvement of several players, and when there is only one player in a game, this is referred to as a decision problem. In the game theory, the various players tend to have strategic actions, as well as preferences, which have an impact on the outcome of the decision they will make.
Players in the game theory have to choose from a wide array of alternatives, which determine the best decision to make in a certain situation. The various participants involved in decision making have to collect necessary and adequate information, which will form the basis for the decisions they will make.
The uses and applications of game theory in decision making largely focus on interdependence and independence in decision making. While using this theory to make decisions, the players have to be autonomous to enable them to make decisions without any undue influence (Kelly, 2004).
The game theory can be applied in solving conflicts, in organizations; the aim of using this theory in conflict resolution is to ensure that there is cooperation in the entire organization. The game theory posits that players express rationality in making decisions and that their actions tend to be based on their best interests.
When there are disagreements between players, the game theory attempts to find common ground and ensure harmonious decision making. The use of game theory in decision making is beneficial in a number of ways. One of the benefits of using this theory in decision making is that it incorporates interdependence, which is a crucial aspect of decision making in organizations.
The theory is also beneficial since it recognizes how people influence each other while making decisions. Another benefit of the theory is that it clearly communicates the outcome of the decisions to all stakeholders (Myerson, 1991).
Despite the many applications of the game theory, several criticisms have been leveled against the theory. These criticisms form the basis for the problems presented by the theory. A key problem with the game theory is that it can only be applicable in situations where realistic behavior is to be predicted. Moreover, people can misuse self-interest to rationalize unacceptable behavior.
The other problem with the theory is that it does not comprehensively account for all the variables, which affect the decision outcome. Another problem with the game theory is that it can only be applied in limited situations.
On this regard, therefore, the theory may not be used to solve a wide variety of problems that an organization may be having. The theory is also problematic since it assumes that all players always come to a consensus, which may not be the case (Gilboa, 2011).
Gilboa, I. (2011). Making better decisions: Decision theory in practice. Chichester, West Sussex: Wiley-Blackwell.
Kelly, A. (2004). Decision making using game theory: An introduction for managers. Cambridge [u.a.: Cambridge Univ. Press.
Myerson, R. B. (1991). Game theory: Analysis of conflict. Cambridge, Mass: Harvard University Press.