The Right Game - Use Game Theory To Shape Strategy (Harvard Business Review HBR).pdf

DOThe RightNOT Game: COPY Use
Game Theory to Shape
Strategy
by Adam M. Brandenburger and Barry J. Nalebuff
Harvard Business Review
Reprint 95402
DO NOT COPY
DO NOTHBRJULY-AUGUST COPY 1995
The Right Game: Use Game
Theory to Shape Strategy
by Adam M. Brandenburger and Barry J. Nalebuff
Business is a high-stakes game. The way we ap- published their book Theory of Games and Eco-
proach this game is reflected in the language we use nomic Behavior. Immediately heralded as one of
to describe it. Business language is full of expres- the greatest scientific achievements of the century,
sions borrowed from the military and from sports. their work provided a systematic way to under-
Some of them are dangerously misleading. Unlike stand the behavior of players in situations where
war and sports, business is not about winning and their fortunes are interdependent. Von Neumann
losing. Nor is it about how well you play the game. and Morgenstern distinguished two types of games.
Companies can eed spectacularly without re- In the first type, rule-based games, players interact
quiring others to fail. And they can fail miserably according to specified “rules of engagement.”
no matter how well they play if they make the mis- These rules e from contracts, loan
take of playing the wrong game. covenants, or trade agreements, for example. In the
The essence of business ess lies in making second type, freewheeling games, players interact
sure you’re playing the right game. How do you without any external constraints. For example,
know if it’s the right game? What can you do about buyers and sellers may create value by transacting
it if it’s the wrong game? To help managers answer in an unstructured fashion. Business is plex
those questions, we’ve developed a framework that mix of both types of games.
draws on the insights of game theory. After 50 years
Adam M. Brandenburger is an associate professor at the
as a mathematical construct, game theory is