Refining organizational decision making process with Game Theory and Behavioral Economics
Game Theory (GT)
GT is a branch of mathematics with a great impact in many disciplines. It is widely used in economics, political science, evolutionary biology or computer science among others.
In GT we are interested in situations where the best choice for the individual depends directly on what other individuals are doing. This is what makes GT different from classical Decision Theory.
To use GT in order to model a situation you need to identify three elements: Players, Strategies and Payoffs. With these elements we characterize the game and its equilibrium or equilibria.
Behavioral Economics (BE)
While traditional economics is based on the assumptions of fully-rational and self- interested individuals, BE, by showing many evidences, raises doubts on both these assumptions.
BE uses economic tools coupled with insights from psychology to better understand and model human behavior.
Its insights can be used for example to address real world challenges, to solve social issues or to improve organizations’ performances.