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How To Create Working Alliances With Business Partners, And Determine The Payoff For Each Member?

2122 words - 9 pages

Introduction
“Man is by nature a social animal; an individual who is unsocial naturally and not accidentally is either beneath our notice or more than human. Society is something that precedes the individual. Anyone who either cannot lead the common life or is so self-sufficient as not to need to, and therefore does not partake of society, is either a beast or a god. ” ― Aristotle
Aristotle has not been the only one who states that man is intrinsically part of a society. But being a part of society does not necessarily means that people inside certain society collaborate with each other.
By using game theory we can have a better understanding of how these society members interact with each other. From how they communicate to how they work together, the compilation of every human behavior can be analyzed through game theory.
Collaboration inside a society is as important as the society itself. And businesses are not the exception. Every business looks after bigger profits, and sometimes in a selfish way. According to Game Theory, the outcomes are bigger when working in groups than those when working alone. The struggle comes when it’s time to split the outcomes. The outcomes should be split in a way in which everyone is making more than what they would do by themselves. Everyone should be satisfied with the split off as well. The question here is; How to split those outcomes?

Discussion
In order to show how Game Theory can be applied in a real situation we need to define first what game theory is. Martin Shubik defines Game Theory as a part of a large body of theory concerning decision-making. It provides a language for the description of conscious, goal-oriented decision-making processes involving more than one individual. It has provided a methodology to make relatively subtle concepts amenable to analysis. These are concepts such as the state of information, choice, move, strategy, outcome, and payoff. It is a branch of mathematics which can be studied as such with no need to relate it to behavioral problems, to applications, or to games. (Shubik, 1971)
From this we can obtain the basis to analyze any working alliance; since any working alliance has concepts such as information, choice, move, strategy, outcome, and payoff. The most difficult analysis is to determine how much each player influences these factors and therefore affect the payoff of each player. Game theory gives us the tools to analyze in an accurate way these variants.
Game theory revolutionized the understanding of signals by explaining communication as a strategic interaction (Maynard Smith 1974). Smith states that communications is a “strategic interaction” and from that point of view we can understand why game theory is important for social interaction. Communication is the most basic ability of the human being, and game theory helps to understand this communication.
Furthermore, it is not only about how people communicate, but it is about how people behave with each...

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