Game on!

There was this mathematics teacher in high school who was very good at chess. His ability to remember the game was so good that he would quickly rewind eight steps after making a wrong move.

Game Theory in mathematics deals with the reverse, handling the game with a positive approach. It helps players visualise many moves ahead, using all available data.

Though it is not uncommon for people, corporations and countries to gather information to fine-tune their own strategies to maximise benefit, it is this mathematical theory that brings in tools to analyse things scientifically.

Developed by von Neumann and Morgenstern in the 1940s, Game Theory has numerous applications for the corporate world, noted Dr R. K. Mishra, Director of Institute of Public Enterprise (IPE). Awareness of this very useful theory though, is very little in India.

“It can be helpful. In times of economic slowdown, it will help in analysing things and reaching out to various stakeholders to reduce inventory, to bring down price by customising products and services,” he said.

It is all about maximising benefit for both (or multiple) players by achieving a sort of equilibrium of aspirations, added Prof Suresh Deman, Director of the London-based Centre for Economics and Finance.

Dr Mishra and Prof Deman were among many experts who discussed ‘Advances and Applications in Game Theory' at an international conference held in Hyderabad recently.

While it started off as a mathematical model, Game Theory has begun to influence intellectuals and policy-makers in the field of economics, finance and governance – and, of course, management.

Why, it can be applied to practical governance issues such as FDI (foreign direct investment) in retail and the knotty Telangana issue, according to Nitin Sengupta, Chairman, Board for Reconstruction of Public Sector Enterprises.

“The decision on allowing FDI in retail is a classic example on how not to handle a sensitive issue. What they should have done, is identify some States where they could have introduced it without any trouble and bring farmers into picture. Game theory should have been used,” he explained.

The contention is that the theory would help in understanding strong positions of various actors in the play, doing a SWOT analysis to find a solution.

Heading a public sector undertaking (Mishra Dhatu Nigam), M. Narayana Rao knows its utility better than most. After letting go of captive business that constituted 40 per cent of the total, he knows that he has to fight it out with competitors to keep afloat and get the remaining 60 per cent of the business.

“This is far more complicated keeping in view the strong dollar and weak European Union. Game Theory will help me deal with this situation,” he said.

Prof Deman quotes Mao: If enemy is sharp, you become sharper. And if enemy is sharper, you become the sharpest.

Well, this could be true of two opponents who are out to eliminate the other. But when it comes to players who have to collaborate for their survival, they should arrive at a commonly agreeable point without having to lose much. A state of equilibrium with each player getting reasonable benefit can be achieved using this theory.

“There are no unique solutions to the problems. Players can experiment with different solutions and concepts to problems that are intrinsically unsolvable. It is possible to identify strategies that do better than others,” argued Prof Deman, while presenting a paper on Game Theory and its application to finance. According to him, the theory has changed the way financial intermediation is conducted.

There is, however, a rider. Prof Deman warned: “It is often criticised on the grounds that it is sensitive to minor changes in the assumptions and lacks empirical verification.”

>kurmanath@thehindu.co.in

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