Game Theory Applied in Game

Game Theory Applied

In game theory, it is assumed that players make decisions based on the best potential outcome from amongst those that will result from their choices and the projected choices of other players (Ross 2010; Levine 2010). At times it can be difficult to see whether or not this theory actually describes behaviors and the decisions and assumptions that lead to these behavior accurately, but a brief hypothetical scenario as well as a real world example and analysis of game theory and its potential application to real world business scenarios -- and specifically to issues of conflict between individual and organizational goals -- can illustrate both the accuracies and shortcomings of this theory. This paper will present such a hypothetical scenario as a means of simply yet effectively demonstrating the basic concepts and mechanisms of game theory, and will also analyze a real world situation observed by the author that is similar to the hypothetical scenario and is also analyzed from a game theory perspective.

In a hypothetical organization, managers are given a ten percent cut of their individual project's earnings, and the top manager in the company is given an additional bonus that is split with another manager if there is a tie in revenue/project success. If manager a has a project currently yielding an eighty percent return to the company that would yield one hundred percent with input from manager B, the organization would obviously benefit from manager Bs advice to manager a, as would manager a him or herself as the increased revenue from manager a's project would result in increased pay to manager a. Manager B, however, would not necessarily want to share information with manager a.

This scenario has manager B. harmed by helping manager a, as manager B. is less likely to receive the bonus for being the company's best manager either in whole or in part if manager as project has a one hundred percent return for the company. If all manager B. cares about is how much money he or she will make for him or herself, then they will withhold information from manager a to secure their own increased bonus, and this will ultimately harm the organization due to the lost potential revenue from manager a's project. This is just one example of how conflicting goals can harm organizations while allowing individuals to prosper or at least benefit, which is a scenario (or rather a general circumstance) that has been well documented and often discussed in academic literature as well as in the popular media, and which bears continuing investigation herein (Shuttleworth 2006; Shepherd 2010; Segerstrom & Nes 2006).

Real World Scenario

A similar occurrence was once observed by the author wherein a sales competition during the holiday shopping season at a retail toy store was meant to boost the retail organization's overall sales by providing incentives to employees for achieving certain sales targets across various price classes, product categories, and in overall volume and revenue. In actuality, the competition became quite stiff between various sales staff as it was the sales leaders in each category that were to receive bonuses, rather then incentives being given to all staff that reached certain targets. This meant that it was in each sales person's best individual interests to hinder sales from others and compete for certain specific sales.