Game Theory †Descriptive, Normative or Prescriptive Essay

Going with heart we often be surprised by the different ways how throng think, make ratiocinations and interact. We believe that most of us argon rational charitable beans (to some extent) and, so, our findings should be grounded in analysis of the situation, our experience and intuition. Therefore, the human look tail end be seen as an incredibly complicated machine that runs serial of theoretical simulations of possible situations (often subconsciously) to find the most optimal course of action, taking into status the possible strategies of others.When the conclusions are important to us and the reasoning go bad on is conscious, we engage in strategical thinking. It has always been tempting to develop a guess that would in sureity explain and predict the human interaction ground on strategic thinking, in that locationfore reservation the strategic decision making more(prenominal) effective to both parties and without risk to going into worst fortune scenar io. Therefore ideally juicyyy surmisal should c all over the questions how the decisions should be make in order to maximize the gains, what reasoning does it imply, how to make the best survival of strategy and what leave alone the pay-offs be for both parties.What questions does halt speculation rattling answer this is how the topic of this experiment might be rephrased. In this essay the discussion leave be focused on the question whether biz speculation is a descriptive, prescriptive or prescriptive surmise. First, a outline explanation of different events of theories should be given as wholesome as the definition of patch possibleness and the development in this academic bowl of study as fountainhead as the practical applications. Then the base of the author will be defined and supporting as well as contradicting jobs based on dissimilar academic articles will be presented and discussed.The last part of the essay will sum up the discussed ideas and h old the final conclusions and remarks. To start with the necessary in-depth understanding of the essay topic, the distinction between normative, descriptive and prescriptive theories should be clarified. As it is kat erstn, normative theory deals with how things should be what ought to be in context of the specific field of study.Descriptive theories are touch with explaining the way things happen (people behave) in veritable ife, moreover the prescriptive theories aim to suggest how things should happen (or how people should react) and this could be just on theoretical level or the likes ofwise connected with the existing sustenance (therefore not provided giving ethical drugs on how to act but likewise the predictions on the future situations). Joseph B. Kadane and Patrick D. Larkey in their paper The Confusion of Is and Ought in gamy Theoretic Contexts from 1983 reflects on the essay topic and distinguishes between different types of normative and positive theories Amo ng positive theories, we distinguish three types.Descriptive theories are come to with empirical phenomena, but stop with a description. Explanatory theories go merely by addressing why questions. Finally, predictive theories discuss what behaviour will be. We as well as distinguish between both types of normative theory, both concerned with what behavior should be. Speculative statements are nonoperational usually consisting of a remnant or criterion (e. g. , maximize utility or profit) with no precise instruction manual on how one might accomplish the goal or try for the criterion.Prescriptions are operational in that they give both a goal (or criterion) and feasible procedures (an algorithm) for accomplishing it. From this quotation it flock be edifyly seen what theory distinctions in back up theory context are made. The essay author will adopt this deliberate and within normative theories take into consideration both speculative and prescriptive types of theories, wi thin descriptive theories include both descriptive and explanatory types and within prescriptive theories look at predictive and prescriptive (for real life situations) types.After clarifying the different types of theories in club with grainy theory, the short description of back up theory and development of mod spirited theory will be given. In the Oxford English lexicon the definition of game theory is as follows the branch of mathematics concerned with the analysis of strategies for dealings with competitive situations where the outcome of a participants choice of action depends critically on the actions of other participants. Game theory has been applied to contexts in war, business, and biota.From the definition we see the important factors are the numerical analysis, different strategic options with different outcomes (pay-offs) and the interdependence of the players. Therefore it indeed looks like the so desired theory described in the introduction of the essay, howev er, what does it actually deliver, that is the main focus of this essay. Modern game theory has been developing outright for more than 50 years since the book Theory of Games and Economic manner by John von Neumann and Oskar Morgenstern was published in 1944.However, it must be noted that some important efforts in explaining the strategic choices strategic decision making has been done also before, for example by Zermelo. Konong, Kalmar and Borel. Game theory has evolved considerably since the publication of von Neuman and Morgensterns book and what is interesting the theory has positive far beyond its initial mathematical boundaries. This is due in a large part to contributions in the 1950s from John Nash (1950, 1951).However, it was in the seventies that game theory as a way of analysing strategic situations began to be applied in all sorts of diverse areas including economics, politics, international relations, business and biology (Chermichael, 2005). By having established t he understanding about the subject of the essay, the arguments contribute instantly be presented. The author believes that the game theory at the stage of development it is now in is a descriptive and prescriptive theory concerning strategic decision making, however with some limitations.Argument 1 Strategic decision making implies / do not imply rational thinking The foremost contra argument discussed will be about the assumption of game theory that the players are rational. It can be argued that this indeed does not reflect real life as people often make irrational choices and therefore game theory is not describing the real gentleman nor giving prescriptions on how to act in real situations but is indeed a normative theory. What needs to be emphasized here is that the essay author argues that game theory is a prescriptive theory when dealing with strategic decision making.Strategic decision making involves long term commitments from an organization and therefore it will be calculatedly analyzed and discussed before the final decision, in order to be sure that the chosen course of action will deliver the highest possible results. Following this thought it can be cerebrate that the players will act rationally, as they are aware of the huge restore of the decision and have certain decision making skills (which can be assumed as they are high in the organizational power structure that they are the ones making strategic decisions).Argument 2 Game theory does / does not describe predict the real world situations Strong followup regarding the interpretation of game theory is verbalised by Rubinstein (1991) There exists a widespread myth in game theory, that it is possible to achieve a miraculous prediction regarding the outcome of interaction among human beings using only data on the order of events, combined with a description of the players preferences over the feasible outcomes of the situation. .. The mystical and vague word rationality is used to p rovide our hopes of achieving this goal.I fail to see any possibility of this being accomplished. Overall, game theory accomplishes only two tasks It builds models based on intuition and uses deductive arguments based on mathematical knowledge. As we see from this quotation, Rubinstein is critical regarding the game theory having any descriptive or prescriptive characteristics. However, he states that what is abstracted for it to be a descriptive (and following that prescriptive theory), is the data describing the help of reasoning adopted by the players when they analyze a game.Since this article more than 10 both scientific and empirical articles have been written immediately dealing with the problems mentioned in this article therefore the interpretation has evolved as well as the game theory itself. Moreover, game theory has been used passim the years by companies and has been proven to be a usable implement for strategists. Camerer in his article Does strategy research ne ed game theory? (1991) comes to a conclusion that a common criticism that game-theoretic models assume as well as much rationality is often wrong because first, some games require myopic rationality to compute equilibria and second, players may reach an equilibrium by communicating, adapting or evolving to it rather than by calculating it. Indeed, the author agrees that the interpretation of the games needs careful attention, however, the theory can be used as a descriptive theory for strategic decisions and by studying it strategists can come to a get out decisions therefore evolving in a prescriptive theory.Another unembellished point enhancing the previously stated is the evolution of game theory now including cooperation, asymmetric schooling and other factors which are present in real life situations. Hutton (1996) describes game theory as an intellectual frame incline for examining what various parties to a decision should do given their possession of inadequate informati on and different objectives. Here we see that in later works game theory is seen as a more sophisticated theory dealing with various situations not only basic theoretic models.The paper of Kadane and Larkey from 1983 states two suggestions in order to clear the is and ought confusion. First, a Bayesian perspective should be adopted, second, more attention should be given to the model validation. The Bayesian behold of games clarifies the proper, respective roles of prescriptive and predictive theory. Taking the Bayesian norm as prescriptively compelling for my play leads me to want the best description I can find of my partner/opponents play. Thus both prescription and description have important roles to play in the Bayesian view of games.Therefore, we see that through Bayesian approach the descriptive and prescriptive characteristics of game theory are enhanced. From authors research for relevant literature concerning the question what type of theory is game theory, it can be seen that most papers concerning these questions are around 1980s and the beginning of 1990s. Later papers on game theory, however, are more concerned of empirical applications of game theory as well as in depth analysis of the theory. The empirical work in such fields as auctions, M&A, price strategy, market strategy etc. as been applying undefeatedly the principles of game theory, therefore beef up the statement that Game theory is indeed now a descriptive and prescriptive type of theory. Argument 3 Game theorist work has been internationally recognized as applicable to real life and lots efficacious to make better strategies and strategic decisions Another strong argument supporting the statement of the author is the work of recent Nobel Prize winners in economics, in 2007 and in 2012 the winners are game theorists Leonid Hurwicz, Eric Maskin, Roger Myerson and LloydShapley, Alvin Roth respectively. (Nobel Prizes in economics also was awarded to game theorists in 1994, 1995 and 2005). Leonid Hurwicz, Eric Maskin and Roger Myerson won the 2007 Nobel Prize for their work in chemical mechanism design theory, a branch of game theory that extends the application of game theory to how different types of rules, or institutions, align individual incentives with overall brotherly goals. Their work on allocation mechanisms has had a significant impact on the design of uctions, social welfare systems and umpteen organizations. As the theory can be applied successfully to real fields of business and real organizations, it can be concluded that game theory must be a prescriptive and therefore also descriptive theory.Moreover, the Nobel Prize in 2012 to Shapley and Lloyd was awarded for the theory of stable allocations and the practice of market design the creation of the impinging from theory to practice. BBC article (15. 10. 012) regarding the winners of 2012 Nobel Prize in economics by Stephanie Flanders, the BBC economic science Editor, states The work of Lloy d Shapley and Alvin Roth reminds us that economics can be both deep mathematical and abstract, and deeply practical not to say hugely useful to public and private organizations all over the world. .. In the past 50 years, game theorists and micro-economics in general have genuinely made the world a better place. Either they have helped to solve practical real-world problems or, where there is no solution, they have helped us to understand the issues more clearly.So once again we see that game theory when applied correctly can help to solve real life problems and therefore is a prescriptive and descriptive theory. Working on the essay the author read through many articles on game theory including the classic papers of Nash (1950,1951) where the theory is explained in detail but applications explained are indeed rather round-eyed and not that applicable to complex real world situations, however, very useful for simple situations.Looking at the research papers written in late 199 0s and 2000s, the empirical applications can be seen more clear and grounded in real life. The critique on game theory expressed by researchers in early 1990s have been taken into consideration therefore help the game theory to evolve ad fuck off descriptive and prescriptive theory that can be applied to many fields.Moreover, practitioners are indeed using game theory, for example highly successful consultancy company McKinsey is using game theory to help managers make better decisions and foresee the different possible risks of different courses of action (Hagen Lindstadt and Jurgen Muller, 2009). The author believes that the game theory has evolved from being more a normative theory to normative prescriptive theory, then by applying these rules to real world descriptive theory has been developed, and now in hand of a masterful strategist game theory is indeed a predictive and prescriptive theory helping to make better strategic decisions.