Decision Theory for Business

Understanding how people make decisions is essential to understand Business processes. In many decision situations in Business, agents have to make strategic decisions, trying to optimize their own objective, but taking account of the behavior of their competitors who usually have conflicting interests. This can be between firms (for example, when firms compete on markets), between firms and other agents (for example, in wage negotiations between firms and trade unions), but also within firms (for example, to decide if it is optimal to monitor employees). Strategic or non-cooperative game theory studies these strategic decision situations. Specifically, we give attention to contract theory and auctions. On the other hand, coalitional game theory is often used as a decision support system in valuation problems, for example in remuneration within firms, cost/budget allocation, or attribution problems such as its application in Google Analytics’ data driven attribution model which is used in, for example, marketing conversion.

In this course, we will discuss basic methods and models of decision making, such as game theory and multi criteria analysis, and consider application to business situations. Besides the business related examples mentioned above, we discuss some decision models that are the foundation of microeconomics, such as models of consumer behavior and game theoretic models of industrial organization.