Game Theory Versus Practice

More companies are using game theory to aid decision-making. How well does it work in the real world? When Microsoft announced its intention to acquire Yahoo last February, the software giant knew the struggling search firm would not come easily into the fold. But Microsoft had anticipated the eventual minuet of offer and counteroffer five months before its announcement, thanks to the powers of game theory. A mathematical method of analyzing game-playing strategies, game theory is catching on with corporate planners, enabling them to test their moves against the possible responses of their competitors. Its origins trace as far back as The Art of War, the unlikely management best-seller penned 2,500 years ago by the Chinese general Sun Tzu. Mathematicians John von Neumann and Oskar Morgenstern adapted the method for economics... [read full story]