Game theory

Welcome to our introduction to Game Theory, a key concept for understanding strategic decision-making in economics, business, biology, and beyond. Game Theory offers a framework for analyzing situations where multiple decision-makers, or “players,” make choices that influence each other’s outcomes. This mathematical branch predicts how rational agents behave in interdependent environments, where each participant’s success depends not only on their own actions, but also on the choices of others. Game theoretic thinking finds application in areas such as international relations, animal behavior, business negotiations, and everyday interactions. Let’s explore some essential concepts. In Game Theory, a “game” consists of players, strategies, and payoffs. Strategies are each player’s possible actions, and payoffs are the outcomes from those actions. Games can be cooperative, with binding agreements, or non-cooperative, without enforceable deals. There is a key distinction between zero-sum games, where one player’s gain is another’s loss, and non-zero-sum games, where cooperation can benefit all. Games are also classified as simultaneous, where players act without knowing others’ moves, and sequential, where there is a set order of play. A central idea in Game Theory is the Nash Equilibrium, named after John Nash. This occurs when no player can improve their payoff by unilaterally changing their strategy, given others’ strategies.