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Game Theory

Definition

Game theory is a branch of mathematics that studies strategic decision-making. It analyzes the choices individuals make and predicts outcomes based on their rational behavior in competitive situations.

Analogy

Imagine you and your friend are playing a video game together. You both have to make decisions strategically to win the game. Similarly, game theory examines how people strategize and make choices in real-life situations.

Related terms

Nash Equilibrium: Nash equilibrium is a state in which each player's strategy is optimal given the strategies chosen by others, resulting in no player having an incentive to change their strategy.

Prisoner's Dilemma: The prisoner's dilemma is a classic game theory scenario where two individuals can either cooperate or betray each other. It illustrates how self-interested behavior can lead to suboptimal outcomes for both parties.

Payoff Matrix: A payoff matrix shows the potential outcomes (payoffs) of different strategies for each participant in a game, helping identify the best course of action for each player.