Advantages and limitations of game theory, Managerial Accounting

Advantages and limitations of game theory

Advantage:

Game theory helps us to learn how to approach and understand a conflict situation and to improve the decision making process.

Limitations:

1) Businessmen do not have all the information needed by the theory of games. Most often they do not know all the strategies available to them, nor do they know all the strategies available to their rivals.

2) There is a huge deal of uncertainty. Hence we usually restrict ourselves to those games with known outcomes.

3) The implications of the minima strategy is that the businessman minimizes the chance of maximum loss. For an ambitious businessman, this strategy is very conservative.

4) The techniques of solving games involving mixed strategies where pay-off matrices are rather large, is very complicated.

5) In non-zero sum games, mathematical answers are not always possible. For example, a reduction in the price of commodity may increase overall demand. It is also not necessary that demand units will shift from one firm to another.

Posted Date: 12/8/2012 4:19:36 AM | Location : United States







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