Questions and Answers
What can game theory help managers to achieve?
Clarify their thinking and gain business insights
According to Judy Lewent, what is one of the benefits of studying game theory?
Analyzing a business situation from multiple perspectives
What is an example of a business concept that game theory can explain, according to Tom Copeland?
The cycle of overcapacity and overbuilding in oligopolies
What is the tone of the media articles cited in the passage regarding game theory?
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What is the implied purpose of studying game theory, according to the passage?
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In a business setting, what type of payment scheme is a sales manager likely to devise to motivate salespeople?
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What is a key consideration for a procurement manager when trying to induce a subcontractor to search for cost-reducing innovations?
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In a takeover scenario, what is a key consideration for the raider when deciding on the price to offer for a firm?
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What is a key aspect of a multinational's negotiation strategy with a foreign government when setting up a manufacturing plant?
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In a collective bargaining scenario, what is a key consideration for a trade union when negotiating with an employer?
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When bidding for a government procurement contract, what is a key consideration for a firm?
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What is the outcome when both prisoners choose to cooperate in the Prisoner's Dilemma?
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What is the strategic landscape in the Cigarette Advertising on TV game?
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What is the recommended strategy for Reynolds in the Cigarette Advertising on TV game?
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What type of game is the Cigarette Advertising on TV game an example of?
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What is the outcome when both Philip Morris and Reynolds choose to advertise in the Cigarette Advertising on TV game?
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What is the concept that describes the situation where both prisoners would be better off by defecting, but each individually chooses to cooperate?
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Study Notes
Importance of Game Theory
- Game theory is a valuable tool for managers to clarify their thinking and gain a competitive edge.
- It has been recognized as a business tool by publications such as The Economist, Forbes, and The Wall Street Journal.
Why Study Game Theory
- Game theory helps analyze business situations from multiple perspectives, including one's own and competitors'.
- It explains complex business phenomena, such as why oligopolies tend to be unprofitable and the tendency to execute real options earlier than optimal.
Bi-Matrix Representation
- A bi-matrix representation is a tool used to analyze game theory situations, involving two players with different strategies and payoffs.
Business Applications
- Game theory can be applied to various business scenarios, such as:
- Procurement management
- Negotiation strategies
- Sales commission schemes
- Production management
- Government procurement contracts
- Takeovers and mergers
- Collective bargaining
- Buyer-seller negotiations
Prisoner's Dilemma
- A classic game theory example, demonstrating the dilemma that arises when individual self-interest conflicts with collective well-being.
Real-World Examples
- Cigarette Advertising on TV: A game theory example of how tobacco companies responded to government warnings and lawsuits.
- Chicken Game: A game theory example of two players engaged in a confrontation, demonstrating the concept of mutual threat.
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