Friday, June 26, 2009

Game Theory - An "Emerging" Field of Study and Interest

While game theory, the study of strategic interactions, has been a field of study in social psychology for sometime, it has become an increasingly important field which on which management science has recently begun to focus on. Particularly, the logical analysis of decision making processes to optimize success as defined within the model.

While the CFA has introduced the idea in the Economics portion of their level I curriculum, I thought that it would be valuable to look beyond what is presented there (including the "optional" sections) and how using game theory can predict strategic level behaviours.

First, the basics, we are familiar with the Hawk-Dove model (a game of chicken) which I used in my investment blog to describe the benefits and pitfalls awaiting investors hoping to gain first movers advantage in the market. I've also used the Prisoner's Dilemma to describe OPEC and Oil.

However, what is what oversimplifies these two examples of game theory is the assumption that they occur only once. That is to say that these models only look at a particular snapshot in time. Whereas we know that the game continues to be played and is modeled by a series of events rather than one discrete iteration. Also, the models used to describe these scenarios are simple 2x2 matrices. As we start to remove some of the assumptions, we will also begin to look at more flexible (and therefore complex) models.

In the next couple of posts and into next week, I will focus on a series of posts aiming to look at more involved cases of game theory and how they can be used to model strategic business behaviour.

5 comments:

  1. I am extremely impressed along with your writing abilities, Thanks for this great share.

    ReplyDelete
  2. I hope you will keep in submitting new articles or blog posts & thank you for sharing your great experience among us.

    ReplyDelete
  3. What you're saying is completely true. I know that everybody must say the same thing, but I just think that you put it in a way that everyone can understand. I'm sure you'll reach so many people with what you've got to say.

    ReplyDelete
  4. Very informative, keep posting such good articles, it really helps to know about things.

    ReplyDelete
  5. I certainly agree to some points that you have discussed on this post. I appreciate that you have shared some reliable tips on this review.

    ReplyDelete