Game theory by definition is a normative
approach for determining what strategies should be followed by a person who has to consider what others are likely to do;
the outcomes depend not only on what you are doing, but also on what others are doing in response (Hoch & Kunreuther,
2001, p. 10).
The American Management Association introduced the concept of game simulation to its
top management team as early as 1956. According to Bass and
“Over 30,000 executives participated in one or more of the hundreds or so business games
that appeared in the first five years following the introduction by the American Management Association of its Top Management
Decision Simulation (Bass & Stogdill, 1990, p. 823).
In a more descriptive way, game theory acts as a management tool, to develop scenarios by which the success
of one individual or group in making decisions depends on the decisions others make as a response. The applications of game
theory treat a wide class of interactions.
Game theory and game simulations may be applied in a wide range
of business and applications. These include but not limited to the used in the social sciences, economics, technology, biology,
political science, media and entertainment, real estate, and philosophy. In the analysis of CEOs and leaders of organizations,
there are numerous socio-environmental factors to consider, such as employees, customers, vendors, business partners, management,
shareholders, global market conditions, public and private markets, the economics of the organization, products and services,
competition, the public media, and the investment community.
For example in one
of such games managers, who are participants in the game as players, must get cooperation of other players (co-workers) to
produce products, possibly made by cutting, assembling and stapling individual parts paper, to make a final product that fits
a puzzle. In this type of game it becomes obvious how the group interact and able to communicate ideas accurately and effectively.
There are many
types of games that are used based on this theory and it is effective in improving corporate performance. It could assist
CEOs and business leaders in simulating scenarios to better prepare them for situations that will either tempt them or divert
them away from executing established long-term strategies by choosing decisions in order to reach short-term objectives.
(Source: Dr. A. Levy doctoral dissertation, 2010).