The comments on Eilon’s last post turned into a dialogue on whether it is of any use for MBAs to learn game theory. I will make some brief comments on this.

With very few exceptions, professors at leading business schools are chosen for their research prowess and hence their skill at analytic thinking and modeling, and have spent little time if any in the business world. Many will do some consulting, but this comes later in their career and is not the basis on which they are hired. How do future managers benefit from professors who have never managed?

Experience may be everything, but it is not the only thing. Or, as Ricky puts it, “Experience is inevitable. Learning is not.” Just as important a cornerstone as experience are models by which to organize experience. The research professor will teach in part via war stories (cases), just as a business veteran would. These are not his war stories, of course, so what it the advantage of his expertise? The advantage comes via in-depth understanding of models. Why is that so important? Models organize the information from the case into well-defined causes and effects. Then you can learn not only what the successful decision was in a given case, but how to adjust this decision for related cases, and, just as important, when the concepts from the case do not apply. A good professor will be able to make clear the assumptions that go into the model, and when they do or do not apply in real life. You always may come across situations where none of the models seems to help, and have to improvise. But the same would certainly be true if you learned from non-theoretical professors; their experience might not be closely enough related to yours. Worse, it might be close enough that you think you should make similar decisions, but you miss a key difference, one which a good model would have drawn your attention to.

A source of real-life war stories that can be better understood with the help of game theory is Co-optition by Brandenburger and Nalebuff. The contents of this book are a great response to anyone who is not sure why theorists might be at a business school.