Game theory in project management

Introduction

In order to advance, management and more specifically strategic management, needs to integrate other scientific disciplines in its own concept. Game theory is an aspect of mathematics designed to understand, model and predict the behaviour of actors considering a determined environment. Basically, the theory identifies the players, their assets and their possible strategies. It simulates, through a precise defined game, the different interaction between entities such as companies, states, lobbies, individuals etc. The concept is already widely used in many fields such as psychology, economics, politics and others. Despite its great efficiency, some prerequisites of Game theory may seem contradictory with a management point of view. First, the extreme mathematical complexity needed to treat some problems is an important limitation, secondly the presumed rationality of the players can be defected in the real world.

Regarding some simple games, such as the prisoner dilemma, this article focuses on the possible outcomes of Game theory leading to development of models and decision making process in management. Going through different scenarios and examples while considering the ethical point of view, this article outlines the use of Game theory as a simple tool. It opens a new and more rational perspective for the manager which can be used in addition to usual managerial skills.

The concept

Overview

Game theory is, at first, a mathematic discipline based on a very high formal demands. This article will not try to explain this aspect. Therefor it has to be considered has an introduction of the concept of game theory and its possible outcomes regarding project management. Game theory main goal is to help to achieve successful decision making process. In order to achieve these objectives the situation has to be studied in a very precise and special framework. This framework is destined to modulate a game, the more the situation can easily be assimilated as such, the more the theory will be effective. The translation from a real world situation to a game is done through high mathematical formalism. Moreover, the framework also requires to identify the payoff each player is looking for and a set of rules. Most of the rules can be determined regarding the situation, others are inherent to game theory, that is: - The players act rationally. - The players act egoistically. The target is always to optimize one’s own payoff. To do so it is however important that the player do not only consider the different strategies available to himself but anticipates the optimal strategy of the other players in order to predict their choices. In most of the games, the payoff depends on strategies of others and therefor the concept of reciprocal influencing plays a huge part in the way the game is played.

Different types of game can be identified regarding the basic settings. For examples games can be symmetric, meaning that both players start the game with equal settings and possibilities, or asymmetric meaning that the choice of the same strategies won’t lead to the same outcomes for the players. One can be considered as having an advantage. Games can also be cooperative: the players can create alliances and communicate. We can also chose to decide if players are aware of what the others are doing to simulate real-life situation. Finally we have zero-sum game where each players play alone regarding its own best interest. The payoffs are fixed to a certain value, and a player winning mean that others have to lose. For example we can consider a cake cut in different parts. If one player take a big part, then the other will automatically get less payoff i.e. less cake regarding our example. No cooperation or alliances can ever change this outcome, the game is defined as being strictly competitive. In opposite in non-zero-sum game, gains from one player doesn’t imply losses for an other one. The amount of gain possible is not fixed.