The Right Game：Use Game Theory to Shape Strategy.doc

The Right Game：Use Game Theory to Shape Strategy The Right Game: UseGame Theory to ShapeStrategyby Adam M. Brandenburger and Barry J. NalebuffHarvard Business ReviewReprint 95402 RGUST 1995HBJULY-AUThe Right GamTheory to Shaby Adam M. BrandenburgBusiness is a high-stakes game. The way we ap-proach this game is reflected in the language we useto describe it. Business language is full of expres-sions borrowed from the military and from sports.Some of them are dangerously misleading. Unlikewar and sports, business is not about winning andlosing. Nor is it about how well you play the gamepanies can succeed spectacularly without re-quiring others to fail. And they can fail miserablyno matter how well they play if they make the mis-take of playing the wrong game.The essence of business success lies in makingsure you’re playing the right game. How do youknow if it’s the right game? What can you do aboutit if it’s the wrong game? To help managers answerthose questions, we’ve developed a framework thatdraws on the insights of game theory. After 50 yearsas a mathematical construct, game theory is aboutto change the game of business.Game theory came of age in 1994, when three pioneers in the field were awarded the Nobel Prize.It all began in 1944, when mathematics genius Johnvon Neumann and economist Oskar MorgensternPHOTOS BY CHRISTOPHER MAKOSCopyright ?? 1e: Use Game pe Strategyer and Barry J. Nalebuffpublished their book Theory of Games and Eco-nomic Behavior. Immediately heralded as one ofthe greatest scientific achievements of the century,their work provided a systematic way to under-stand the behavior of players in situations wheretheir fortunes are interdependent. Von Neumannand Morgenstern distinguished two types of games.In the first type, rule-based games, players interactaccording to specified “rules of engagement.”These rules might come from contracts, loancovenants, or trade agreements, for example. In thesecond type, freewheeling games, players interactwithout an