Reflections on the Practical Applicability of Strategic Game Theory to Managerial Incentivation

TLDR: In this article, the authors provide an overview over the current findings in game theory regarding such incentive mechanisms and critically evaluate the practical applicability of these findings to the design of incentive systems in the area of management accounting.

Abstract: On the one hand, game theory has proven to effectively address a wide range of economic problems. In general, it analyses the impact of incentives of different kinds on human decision making and behaviour. Thereby, it has found mechanisms to effectively induce specific behaviour, like the Groves mechanism. On the other hand, in management accounting the design of effective incentive systems plays a major role. The aim of these incentives is to induce decision makers to act in the interest of their firms. Consequently, the question rises whether and how game theory can inform the design of these incentive systems. The present paper provides an overview over the current findings in game theory regarding such incentive mechanisms and critically evaluates the practical applicability of these findings to the design of incentive systems in the area of management accounting. The paper concludes with an overview of aspects that should be addressed in future research.