Game Theory at Work: How to Use Game Theory to Outthink and Outmaneuvar Your Competition

Game Theory at Work: How to Use Game Theory to Outthink and Outmaneuvar Your Competition

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by James Miller
     
 

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Easy-to-Follow Strategies for Using Game Theory to Grab the Upper Hand in Every Business Battle



Game theory--the study of how competitors act, react, and interact in the strategic pursuit of their own self-interest--has become an essential competitive tool in today's business arena. Game Theory at Work provides examples of how

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Overview

Easy-to-Follow Strategies for Using Game Theory to Grab the Upper Hand in Every Business Battle



Game theory--the study of how competitors act, react, and interact in the strategic pursuit of their own self-interest--has become an essential competitive tool in today's business arena. Game Theory at Work provides examples of how businesspeople can use this time-proven approach to successfully meet competitive challenges and, more often than not, claim the upper ground in each battle before it begins.



Game Theory at Work steers clear of the opaque mathematics and pedagogy that so often hamper practitioners of game theory, relying instead on lively case studies and examples to illustrate its remarkable methods in action. Complex yet comprehensible, it provides you with:




  • Methods for applying game theory to every facet of business
  • Strategies for instantly improving your position in virtually any negotiation
  • Game theory techniques to increase the output--and value--of each employee



At its essence, business is a game, albeit a profoundly serious game that must always be played to win. Game Theory at Work is the first plain-English examination of the use of game theory in business. Let it provide you with the intellectual tools you need to instantly understand every game you're playing, use that knowledge to your advantage, and consistently maximize your finish-line payoff.



"Game Theory at Work won't teach you about power-chants, discuss the importance of balancing work and family, or inspire you to become a more caring leader. This book will instead help you out-strategize, or at least keep up with, competitors inside and outside your company."--From the Introduction



Like Sun Tzu's timeless The Art of War, Game Theory at Work is about knowing your adversary as well as yourself. It is also about using that knowledge to prepare yourself for victory.



But above all, this one-of-a-kind book is about dramatically improving your strategic instincts and decision-making skills--and emerging victorious--in virtually any business encounter.



Introduced by John von Neumann and Oskar Morgenstern in their 1944 book Theory of Games and Economic Behavior, and further honed through the decades by thought leaders including Nobel Prize winner John Nash, game theory analyzes strategic interactions in which the outcomes of various choices depend on the choices of others. Game Theory at Work applies this innovative tool to the world of business, and provides a step-by-step framework for using game theory to improve your on-the-job success in areas including:




  • Negotiating
  • Managing
  • Pricing
  • Positioning
  • Establishing strategic alliances



More than that, however, Game Theory at Work is a one-of-a-kind tool to battle the high costs of indecision. It shows you how to enter any encounter confident in how others will act, and then use game theory to base your strategies and actions on this knowledge. Case studies, puzzles, and, yes, games demonstrate why unexpected and often paradoxical results are the norm when humans compete, and help you use this fact to your advantage. And, chapter-ending lessons highlight essential rules learned.



... All in a book that is both absorbing and entertaining, designed to improve your business instincts without requiring the use of needless mathematics or theoretical mumbo-jumbo.



Everything in life is competitive in one way or another, and game theory has revolutionized the art and science of what to look for--and how to act--when engaged in competition. Game Theory at Work studies the use of game theory in today's hard-fought business arena, and shows you how to use it to gain maximum advantage in every professional encounter, whatever your role in that encounter.

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Product Details

ISBN-13:
9780071429009
Publisher:
McGraw-Hill Education
Publication date:
03/22/2003
Sold by:
Barnes & Noble
Format:
NOOK Book
Pages:
288
Sales rank:
522,003
File size:
2 MB

Read an Excerpt

GAME THEORY AT WORK

How to Use Game Theory to Outthink and Outmaneuvar Your Competition


By James Miller

The McGraw-Hill Companies, Inc.

Copyright © 2003McGraw-Hill
All rights reserved.
ISBN: 978-0-07-142900-9


Excerpt

CHAPTER 1

INTRODUCTION


"Honour and profit lie not in one sack."

Proverb


Your life consists of games, situations in which you compete for a high score. Game theory studies how smart, ruthless people should act and interact in strategic settings. This book will teach you to solve games. In some games you will negotiate for a raise; in others you will strive to ensure that an employee works as hard as possible. Sometimes you will know everything, while in other games you will have to guess at what others know that you don't. Occasionally competitors will have to work together to survive, while in other situations cooperation will be impossible since the winner will take all. Many of the games will seemingly have nothing to do with business, but will be presented to give you insights into strategy. Since the games that businesspeople play are both complicated and diverse, this book will provide you with the intellectual tools necessary to recognize what kind of game you're playing, and, more important, to maximize your payoff in any game you're in.

In the world of game theory there exists no mercy or compassion, only self- interest. Most people care solely about themselves and everyone knows and accepts this. In game theory land your employer would never give you a raise because it "would be a nice thing to do." You get the raise only if you convince your employer that it serves his interests to give you more money. Game theory land resembles the hypercompetitive all-against-all environment that often characterizes business in the capitalist world. But, as this book will show, even when everyone acts totally ruthlessly and extremely competitively, the logic of game theory often dictates that selfish people cooperate and even treat each other with loyalty and respect.

This book is fluff free! Game Theory at Work won't teach you about power-chants, discuss the importance of balancing work and family, or inspire you to become a more caring leader. This book will instead help you to outstrategize, or at least keep up with, competitors inside and outside your company.

Economists have devoted much thought to how you should play games of strategy, and these ideas, which constitute game theory, influence the thinking of businesspeople, military strategists, and even biologists. They also infiltrate everyday life, whether you recognize it or not. Almost all MBA students and undergraduate economics majors will formally encounter game theory in the classroom. Not understanding game theory puts you at a tactical disadvantage when playing against those who do.

You will find game theory ideally suited for solitary study because it's interesting. Sure, accounting is at least as important to business as game theory, but do you really want to spend your free time memorizing the rules of what constitutes a debit? Perhaps the most interesting thing that human beings do is compete. Game theory, the study of conflict, illuminates how rational, self-interested people struggle against each other for supremacy.

In game theory players often base their moves on what they think other people might do. But if your move is based on what your opponents might do, and their moves are based on what they think you are going to do, then your move will in fact be somewhat based on what you think your opponents think that you will do! Game theory can get complicated, but then so can business.

Ideally, you would learn game theory by reading a textbook. Actually, this isn't true. Your time is valuable, and textbooks are designed to be studied over several months. So ideally you should learn game theory by reading a relatively short, accessible book such as this. Game Theory at Work is more accessible than a textbook, but perhaps more challenging to read than the typical mass-market book. To master game theory you must engage in active learning: you need to struggle with puzzles and (obviously) games. The Appendix contains study questions to many chapters. Although you could follow the entire book even if you skip all these questions, struggling with them will make you a stronger player.

This book will challenge your intellect by showing how strange and seemingly paradoxical results manifest themselves when humans compete. Among this book's lessons are the following:

• Never hire someone too eager to work for you.

• Have less trust in smokers.

• Many people in business exhibit honesty not because they are moral but because they are greedy.

• Eliminating choices can increase your payoff.

• Burning money can increase your wealth.

• Stock prices respond quickly to new information.

• Day-traders still need to worry about their stock's long-term prospects.

• Exposing yourself to potential humiliation can increase your negotiating strength when seeking a raise.

• Inmates in mental institutions have a few negotiating advantages over their somewhat more sane corporate counterparts.

• Learning about Odysseus' recruitment into the Trojan War provides insight into why stores issue coupons.


You might ask, "Will reading this book help me make money?" A true game- theoretic answer might be that since you have probably already bought this book, I don't really care what benefit you would receive from reading it, so why should I bother answering the question? In fact, you likely only purchased this book after reading the jacket, the table of contents and maybe the first paragraph of the introduction. Perhaps I should only bother putting a lot of effort into these very small parts of the book and just ramble on for the rest of it to fill up space. For the rest of the book I could just ramble on and on by being very, very, very verbose as I repeat myself over and over again by just rambling on to fill up the space that I have to fill up for you to think that this book is thick enough to be worth the book's purchase price. After all, I have more important things to do in my life than write for the pleasure of people I have never even met. Of course, I like money, and the more copies of this book that sell, the more money I'll get. If you do like this book, you might suggest to a friend that she buy a copy. Also, if I choose to write another book, you will be more likely to buy it if you enjoy this one, so probably for purely selfish reasons I should make some attempt to provide you with useful information. Furthermore, as of this writing my publisher, McGraw- Hill, still has the contractual right to reject this manuscript. Since McGraw- Hill is a long-term player in the publishing game, they would be harmed by fooling book buyers into purchasing nicely wrapped crap. Alas, this means that if I manifestly fail to put anything of value in this book my publisher will demand the return of my advance. Beware, however, if you end up enjoying this book, it's not because I wrote it for the purpose of making you happy. I wrote it to maximize my own payoff. I don't care, in any way, about your welfare. It's just that the capitalist system under which books are produced in the United States creates incentives for me to seriously attempt to write a book that customers will enjoy and perhaps even benefit from reading.


WHAT EXACTLY IS GAME THEORY?

There are three parts to any game:

• A set of players

• Moves the players can make

• Payoffs the players might receive


The players choose their moves to maximize their payoff. Each player always assumes that other players are also trying to maximize their score.

Game theory gets interesting, however, only when there
(Continues...)


Excerpted from GAME THEORY AT WORK by James Miller. Copyright © 2003 by McGraw-Hill. Excerpted by permission of The McGraw-Hill Companies, Inc..
All rights reserved. No part of this excerpt may be reproduced or reprinted without permission in writing from the publisher.
Excerpts are provided by Dial-A-Book Inc. solely for the personal use of visitors to this web site.

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