Although cooperative game theory hasn’t received nearly as much attention as the noncooperative kind, it too has a long and distinguished history. The book that actually launched modern game theory in 1944, John von Neumann and Oskar Morgenstern’s Theory of Games and Economic Behavior, devotes more space to cooperative games than to noncooperative games. If the Nobel committee had decided to recognize contributions to cooperative game theory, rather than the noncooperative variety, the economics prize could have been appropriately awarded to Lloyd Shapley, Martin Shubik, and Robert Aumann, three key figures in the history of the field. Currently, one of the most important uses of cooperative game theory is to help companies make more reliable decisions about mergers and divestments.
The nonmathematical book that currently provides the best introduction to cooperative game theory business applications is Adam M. Brandenburger and Barry J. Nalebuff’s Co-opetition. This book provides some remarkably clear answers to questions about what businesses a company should be in and how a company should try to influence the landscape in which it operates. It wears its theory so lightly that most readers are barely aware of how deeply it is grounded in cooperative game theory.
The next wave of game theory books will be distinguished from the earlier ones by the increased attention many of them will give to cooperative game theory. Innovative theorists, such as Columbia University’s Harborne Stuart, have also been exploring ways of combining cooperative and noncooperative game theory to guide strategic decisions. Companies using the resulting models will gain a better idea both of what value they can create and of what value they can collect. These new efforts should bring a rigor and clarity to the areas of business most in danger of succumbing to madness.
Reprint No. 03110
Game Theory Resources
Adam M. Brandenburger and Barry J. Nalebuff, Co-opetition (Currency Doubleday, 1996), 290 pages, $16.95; http://mayet.som.yale.edu/coopetition/index2.html
Avinash K. Dixit and Barry J. Nalebuff, Thinking Strategically: The Competitive Edge in Business, Politics, and Everyday Life (W.W. Norton & Co., 1992), 400 pages, $15.95.
Prajit K. Dutta, Strategies and Games: Theory and Practice (MIT Press, 1999), 476 pages, $65.
Roger A. McCain, Strategy and Conflict: An Introductory Sketch of Game Theory (Web book in progress, 2002), free; http://william-king.www.drexel.edu/top/eco/game/game.html
John McMillan, Games, Strategies, and Managers: How Managers Can Use Game Theory to Make Better Business Decisions (Oxford University Press, 1992), 252 pages, $17.95.
Sylvia Nasar, A Beautiful Mind: The Life of Mathematical Genius and Nobel Laureate John Nash (Simon & Schuster, 1998), 464 pages, $26.
John von Neumann and Oskar Morgenstern, Theory of Games and Economic Behavior (Princeton University Press, 1944), 648 pages, $37.50.
Joel Watson, Strategy: An Introduction to Game Theory (W.W. Norton & Co., 2002), 334 pages, $71.
Knowledge Review/Books in Brief
Searching for a Corporate Savior: The Irrational Quest for Charismatic CEOs
By Rakesh Khurana
Princeton University Press, 2002
320 pages, $29.95
In Hans Christian Andersen’s tale “The Emperor’s New Clothes,” it’s a small child, unconcerned about his reputation, who points out that the great man is naked. Rakesh Khurana, assistant professor of organizational behavior at Harvard Business School, has performed a similar service in his new book, Searching for a Corporate Savior: The Irrational Quest for Charismatic CEOs. He argues persuasively that the entire “imperial” corporate CEO selection process is naked, as he strips away the illusion that the practice is driven by classical marketplace dynamics. He backs up his arguments with extensive data and the results of interviews with 40 corporate directors and 30 consultants from executive search firms.