Advantages & Limitations of Game Theory
Advantages
- Game theory gives insight into several less-known aspects, which
arise in situations of conflicting interests. For example, it describes
and explains the phenomena of bargaining and coalition-formation.
- Game theory develops a framework for analyzing decision making in
such situations where interdependence of firms is considered.
- At least in two-person zero-sum games, game theory outlines a scientific
quantitative technique that can be used by players to arrive at an
optimal strategy.
Limitations
- The assumption that players have the knowledge about their own pay-offs
and pay-offs of others is not practical.
- The techniques of solving games involving mixed strategies particularly
in case of large pay-off matrix is very complicated.
- All the competitive problems cannot be analyzed with the help of
game theory.
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This chapter focussed on
decision problems characterized by conflict or competition among
two or more competitors. For example, advertising strategies, pricing
policies, etc. Game theory is used to analyze such competitive situations.
Actually, game theory provides the basis for rational decisions
and thus improves the decision making process.
You learned several different techniques for solving games such
as algebraic method, calculus method, linear programming method,
and graphical method. Moreover, we discussed a very important principle,
namely, dominance useful for reducing the size of games. |
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