Game theory: basics

In short: Game theory studies how people or companies make strategic decisions when the outcome depends on the behaviour of other participants. It’s applied in economics, politics, biology, and many other fields.

In more detail: Unlike simple optimisation problems, actors in game-theoretic situations must anticipate the possible reactions of other actors.

In detail

• Players and strategies: Every “game” consists of participants, available action options, and resulting payoffs for each combination of decisions.
• Prisoner’s dilemma: This classic example shows how individually rational behaviour can lead to a worse outcome for everyone involved than mutual cooperation.
• Nash equilibrium: A state in which no player would unilaterally change their strategy, since any change would worsen their own outcome.
• Zero-sum games: In these games, one player’s gain exactly equals another’s loss, as in many classic board games.
• Cooperative versus non-cooperative games: Some game theory models allow binding agreements between players, others assume purely self-interested behaviour.
• Repeated games: With repeated interaction, cooperative strategies can develop that wouldn’t be stable in one-off games.
• Practical applications: From price negotiations to auction design to international climate negotiations, game theory uses real strategic situations for analysis (monopol-oligopol-und-wettbewerb, wahrscheinlichkeitsrechnung-grundlagen).