Using tools from science and engineering to tackle problems in business and economics

"Using tools from science and engineering to tackle problems in business and economics "
Department of Administration Engineering, Faculty of Science and Technology, Keio University
Yasushi Masuda

Recently, business and economics have become increasingly complex and uncertain. The Masuda Laboratory is researching price setting in particular, based on micro-economics and management science.

Q."Price setting is an important strategy for businesses to make a profit. But it's not an issue that involves businesses alone. For example, let's consider how to choose between two routes to a destination. "

Every minute, 10 cars travel from Point A to Point B. Route 1 is a narrow short-cut, and when there's x amount of traffic on this route, it takes x minutes to travel. Route 2 is a wide road, and it takes 10 minutes to travel, regardless of how much traffic there is. Each driver freely seeks the shortest route. At equilibrium, all drivers use Route 1, so the total travel time is 100 minutes.

No-one uses Route 2, so the resource is wasted. So let's set a toll for Route 1. Suppose that the value of time at 10 yen per minute. We set the toll for Route 1 at 50 yen. If drivers freely seek the cheapest route, at equilibrium, the traffic volume on each route is 5. The total travel time is 75 minutes, which is shorter than if there's no toll.

Q."Many problems in business arise from uncertainty. In the problem of traffic congestion, individuals consider the behavior of other people, and try to use roads that have less traffic. Firms must come up with prices and supply strategies while considering such strategic behaviors by consumers. Moreover, if a business has competitors, it can't decide prices to suit its own circumstances alone. The theory for handling situations where strategies are set while considering the actions of opponents is called game theory."

Game theory plays an important role in handling problems in business and economics. Game theory is a branch of mathematics, but it also includes research on human behavior patterns, and even bargaining tactics.

The Masuda Laboratory has an effective methodology for studying game theory. This is the "reading seminar" method, where each student presents content from theoretical papers in their field, and the audience ask questions and give their opinions. Through such presentations, students acquire higher-level skills in analysis, logical thinking, and presentation, as well as deepening their understanding of game theory.

Q."Thinking about business problems using free concepts might seem unrelated to science or engineering. But analyzing business problems scientifically is the essence of research in our group."

Category:

Science & Technology

Tags:

• Keio
• University
• Yasushi
• Masuda
• Laboratory
• Research
• Game
• Management
• Economy