About Game Theory

Game Theory is one of the most important scientific disciplines of modern economics. This is documented not only by the Nobel Prize of economics 2005 for Robert Aumann and Thomas Schelling, who have both been dealing with Game Theory. The latter e.g. discusses the aspect of threat and promise in negotiations in his publications.

Whenever you have to make a strategic decision whose result depends on the decision of third parties, you are in a situation that is to be viewed as "game" in a certain sense. Game Theory describes such situations abstractly and delivers methods to derive the optimum stratey, i.e. a strategy that will provide you with the best result. In contrast to Decision Theory, which deals with probabilities, Game Theory is based on the anticipation of the actions of other "players".

Game Theory, Bargaining Theory and Auction Theory all offer a number of forms of negotiations and auctions, which lead to different results depending on the specific competition situation. Those can be e.g. sequential negotiations, sealed bidding rounds or real auctions. In practice, the choice of the right form is often absolutely crucial for the success of a negotiation, which is the reason why more and more companies work with professionals who make this choice for them.