THE GAME OF BUSINESS

McDonald first heard of economic game theory as developed by mathematicians John Von Neumann and Oskar Morgenstern from John Kenneth Galbraith during their years together as staff members of Fortune magazine. His initial story to apply game theory for the magazine concerned poker strategy, and that seems as simple a model as you could fred for decision-making behavior. Game theory is a development of the standard ""free market"" model of Keynesian economics with a realistic, oligopolistic (""earthy"" is what McDonald calls it) emendation--the capitalistic market is not strictly ""free."" It is a struggle of succeeding coalitions, double crosses, side payments, manipulations and various others quids pro quo. Understanding what's going on is a function of mastering the jargon of game-theory categories--""zero-sum"" vs. ""steady-state"" or ""one-shot"" games; the outcome and the payoff, core theory, etc. McDonald has chosen some fascinating examples to illustrate how it all works, including General Motors' successful 1921 plan to invade Ford's market; an interview with the late Walt Disney who explains why he diversified his product; an ideal model of incomplete information based on TWA and the invisibility of Howard Hughes, a foray into the recent communications revolution with a ten-player cooperative game among AT&T, Comsat, Hughes, CBS, AT&E, etc.; a representative pollution game played for the state of Maine. An impressive application of Rand-style analytical thinking to the standard business problems of acquisition, expansion and merger, the bottom line and other corporate goals.