Game theory is a mathematical framework for analyzing strategic interactions among rational decision-makers. It has applications across a range of fields including economics, political science, psychology, and evolutionary biology. Here are some key concepts:
- Players: The decision-makers in the game.
- Strategies: The choices available to each player.
- Payoffs: The outcomes resulting from the combination of strategies chosen by the players.
- Games: Can be cooperative (players can form binding commitments) or non-cooperative (no binding commitments).
- Equilibrium: A situation where no player can benefit by changing their strategy while the others keep theirs unchanged. The most famous is the Nash Equilibrium, named after John Nash.
Example:
- Prisoner's Dilemma: A classic example where two individuals, acting in their own self-interest, do not produce the optimal outcome. If both cooperate, they get a moderate penalty. If one betrays the other, the betrayer goes free while the cooperator gets a heavy penalty. If both betray, both get a severe penalty.