Research on the Construction of Methods and Systems for Early Warning of Enterprise Financial Crises

Author: Liu Hongxia
Publisher:
Publish Date: 2005-06-01
Features: 2.4 Proposing Financial Crisis Pre-control Countermeasures Based on Game Theory
Game theory, also known as the theory of games, is a method for analyzing strategic behavior. It involves considering the expected actions of others and acknowledging the interrelationships among participants. Game theory was first summarized as an economic theory by John von Neumann and Oskar Morgenstern in their seminal work Theory of Games and Economic Behavior (1944). Since then, many economists have conducted extensive research on it. Currently, game theory is increasingly applied to corporate and government decision-making analysis. Under the assumption that all decision-makers are rational, each seeks to make the optimal decision by predicting the possible actions and reactions of competitors.
Generally, the elements of a game include several players (participants), the strategies they adopt, and the outcomes resulting from their decisions. The processes of different games vary. For example, a game is called a one-shot game when each player acts without knowing how others will behave and without the opportunity to respond to their actions. In real business environments, many games are not one-shot but repeated. For instance, if a company adopts a low-price strategy, its competitors may follow suit. However, since such a strategy harms their own interests, there is a limit to price-following tactics. If the game is repeated infinitely, players may establish some collusion agreement to end the game. A common example in economics is the dominant strategy equilibrium. Due to the interdependence of strategies among players, the optimal strategy choice of each player depends on the strategies chosen by all other players. However, in some special games, a player's optimal strategy may not depend on the choices of others. That is, regardless of what other players choose, a certain strategy will always be optimal for that player. Such a strategy is called a "dominant strategy."
Assume there are two firms that always operate at full capacity. If a firm expands its production capacity, it may gain a larger market share but will face downward pressure on prices. The outcome of the firms' choices is shown in Table 2-1. Each firm can independently make capacity decisions simultaneously. If Firm A's strategy is "not to expand capacity," then in Firm B's decision, "not expanding capacity" will yield an annual economic profit of 1.8 million yuan, while "expanding capacity" will yield 2.0 million yuan. Clearly, in this case, Firm B will choose "expand capacity." Similarly, if Firm B's strategy is set to "expand capacity," Firm A's "not expanding capacity" will yield an annual economic profit of 1.5 million yuan, while "expanding capacity" will yield 1.6 million yuan. Therefore, Firm A will choose "expand capacity."
This example warns us: Without understanding the external environment, decisions are often made from a self-interested perspective, without regard for others or society. Therefore, when making decisions, enterprises must fully consider the impact of external factors, analyze various competitive forces, and make decisions based on this foundation.