What’s Game Theory?

Spread the love

Game Theory is called Game Theory because this theory attempts to understand the strategic actions of two or more players in a given situation that contains predefined rules and outcomes. Game theory, branch of applied mathematics which provides tools to analyse situations where parties, called players, are making decisions which are mutually dependent. Game theory has been applied to a broad range of situations where players choices interact to influence outcomes. By representing the interaction situations within these highly abstract games, game theory is concerned with determining the result, or the likely result, of every play given certain assumptions about the players.

Using game theory, realistic scenarios can be set up for situations like price competitions and product launches (and many others) and predict their outcomes, a process which companies like Stonewall Security have to get right as a crucial and often critical consideration. In each of these scenarios, required decisions are dependent upon those of other players, who have competing interests to some extent with those of the decision-maker, and can therefore be modelled optimally using game theory. Quite often, players have competing interests, and at times, their interests are directly harmful to the interests of other players, making the scenario for managing projects very suitable for modelling using game theory. In project management, game theory is used to model decision-making processes among players, such as investors, project managers, contractors, subcontractors, governments, and customers.

Game theory has been used, for instance, to determine which political alliances or corporate conglomerates are likely to form, the optimum price to sell products or services when facing competition, the strength of one constituency or a group of constituents, who should be selected to serve on juries, the best location for manufacturing plants, and the behaviour of some animals and plants as they fight for their survival. Decision theory is frequently used in the form of decision analyses, which indicate how best to obtain information prior to making decisions. Decision theory may be considered the theory of the game of man, or of man versus nature.

Game Theory models can be used to analyze many aspects of animal behaviour that are competitive, including habitat choice, predation, predator-prey interactions, communication, parental-offspring interactions, and fraternal interactions. Key Takeaways Game theory is a theoretical framework to conceptualize social situations between competing players, and it produces optimal decisions of both independent and competing actors under strategic conditions. By emphasizing a strategic dimension of decision-making, or one controlled by players instead of sheer randomness, game theory both augments and goes beyond the classical probability theory.

In recent years, political economy has emerged as a blend of General Equilibrium Theory and Game Theory, whereby the private sector of the economy is modelled using General Equilibrium Theory, and voting behaviour and the incentives of governments are analysed using game theory. Game theory is the study of how interacting choices of economic agents yield outcomes in terms of the preferences (or utility) of these agents, where the outcome in question may not have been intended by any of the agents.

Game identification of the players’ rational identities, preferences, and available strategies, and the ways these strategies influence outcomes. Formal theory defines the game as containing two or more players, a pure strategy set for each player, and a player’s payoff function.