Game Theory
The mathematical study of strategic decision-making between rational agents.
Also known as: Strategic theory, Decision theory, Interactive decision theory
Category: Concepts
Tags: strategies, decision-making, economics, mathematics, competitions
Explanation
Game theory is the mathematical study of strategic decision-making - analyzing situations where the outcome for each participant depends on the choices of all participants. It models how rational agents interact when their fates are interdependent. Key concepts: players (decision-makers), strategies (choices available), payoffs (outcomes of choices), and equilibrium (stable states where no one benefits from changing). Classic examples: Prisoner's Dilemma (cooperation vs defection), Chicken (who backs down?), Coordination games (matching expectations), and Zero-sum games (one wins, other loses). Nash Equilibrium: a state where no player can improve their outcome by unilaterally changing strategy - even if it's not optimal for the group. Game theory insights: rational individual choices can lead to collectively poor outcomes (tragedy of the commons), communication and commitment change dynamics, reputation matters in repeated games, and cooperation can emerge from self-interest. Applications: negotiations, competitive strategy, auction design, evolutionary biology, and political science. For knowledge workers, game theory provides: frameworks for analyzing strategic situations, understanding competitor behavior, and designing incentives and mechanisms.
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