According to Fast Company, No one actually uses Game Theory in business.

Adopting our usual rigorous methodology, we set the following parameters. To count, an example must:

1. be an actual business situation where somebody used the insights of game theory;
2. have occurred within the past five years; and
3. involve real, live, actual companies — not governments, nonprofit organizations, or Russell Crowe.

First, we scoured the literature. We selected a relevant portfolio of 40 publications and submitted our queries. We tried again. And again. And we found . . . nothing. There were plenty of mentions of government spectrum auctions, and A Beautiful Mind came up hundreds of times. Not quite what we had in mind.

Personally, I use the concepts of Game Theory all the time in my day-to-day work, although maybe not in the ways that the Fast Company team are looking for.

I use the concepts, I just don’t (usually) brag about them. They are tools that I use to solve the problem of managing risk, not and end unto themselves.

I don’t wake up in the morning, look around me, and think, Today, I’m going to use Game Theory any more than I wake up and think, Today, I’m going to use Excel. If I need to build a cost model, I use Excel. If I need to predict expected outcomes, I’ll probably apply the lessons of Game Theory.

Also, I don’t necessarily use them in the sort of big-picture sort of way that the Fast Company writers defined to make their idea into a story. But, to quote my Game Theory professor, “He who makes the rules, wins the game.”

Concepts like the Prisoner’s Dilemma and Nash Equilibria figure into my work life with some frequency as I attempt to balance competing and contradictory interests to everyone’s satisfaction, then convince them that’s really the case.

And, reaching a bit, I’ve even been known to use Finite Automatons when I develop processes and workflow.

How about the rest of you? How many of you are using the concepts you learned in game theory and had forgotten that’s what they were called?

Game Theory…

But if you are going to do a proper scientific experiment, you have to have a proper control. The absence of game theory in the business literature doesn’t mean very much until we have something to compare this finding against. So let us ask how many …

I show how nearly all businesses use game theory
here:
http://www.cwalsh.org/blog/archives/001324.php

Less succinctly, but more seriously:

Game theory may not be explicitly used by firms to model and predict the behavior of their competitors or customers (although I believe it is), however, concepts familiar to any student of game theory are also well-known in business circles (even among non-Chicago MBAs). The example that comes to mind is defection in the last stage of an iterated PD. Any business person who doesn’t see that coming is in for a rude awakening.

I suppose in business circles one will find a less pure variant — these people don’t care about methodology, they care about money. So, you’re likely to see more about Kahneman and Tversky than about Luce and Raiffa. I say, nonetheless, that the glass is half full. Indeed, it is probably 90% full if you look at financial firms and decision theory.

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