Games of Strategy

We think strategically whenever there are interactions between our decisions and other people’s decisions. In order to decide what we should do, we must first reason through how the other individuals are going to act or react. What are their aims? What options are open to them? In the light of our answers to these questions, we can decide what is the best way for us to act. Most business situations are interactive in the sense that the outcome of each decision emerges from the synthesis of firm owners, managers, employees, suppliers, and customers. Good decisions require that each decision-maker anticipate the decisions of the others. Game theory offers a systematic way of analysing strategic decision-making in interactive situations. It is a technique used to analyse situations where for two or more individuals the outcome of an action by one of them depends not only on their own action but also on the actions taken by the others (Binmore, 1992; Carmichael, 2005; McMillan, 1992). In these circumstances, the plans or strategies of one individual depend on their expectations about what the others are doing. Such interdependent situations can be compared to games of strategy. Games can be classified according to a variety of categories, including the timing of the play, the common or conflicting interests of the players, the number of times an interaction occurs, the amount of information available to the players, the type of rules, and the feasibility of coordinated action. Strategic moves manipulate the rules of the game to a player’s advantage. There are three types of strategic moves: commitments, threats, and promises. Only a credible strategic move will have the desired effect.