Waterloo’s wizards of game theory

Posted on January 26, 2007  Comments (0)

16,777,236 – That’s the number of outcomes that are possible when eight competitors each consider three strategic options.

The first step was to get executives from IBM into a room to start mapping out the game. For the math in game theory to work effectively, all players capable of influencing the game must be identified and their potential options listed and ranked. At this stage, clients are asked to draw on a wide range of personnel, since, in the case of IBM, its marketing people would likely have a different perspective on Microsoft than would its engineers. Once the group is assembled, they are asked to determine what objectives another company is likely to pursue. “Frequently they will say to us, ‘Well, we don’t know about those competitors.’ And our answer is, ‘Yes, you do,’ ” Mitchell says.

California Institute of Technology professor R. Preston McAfee, a leading game theorist who helped the U.S. government design auctions for broadband spectrum, says doubters ought to remember that game theory is a tool, not an answer. “Game theory is sometimes criticized because it doesn’t actually completely solve the problem,” McAfee says. “On the other hand, the exercise of applying game theory very often clears up things that you can dispense with—issues that aren’t salient to the decision process. Sometimes just thinking it through identifies strategies that you hadn’t thought available.”

Interesting, via: Globe and Mail on game theory

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