Introduction to Game Theory

Game theory is a theoretical framework that uses models to study social situations between rational players who compete with each other. It helps to understand the optimal decision-making of independent and competing actors in a strategic setting. The pioneers of Game Theory were mathematician John von Neumann and economist Oskar Morgenstern in the 1940s. The focus of game theory is on the game, which serves as a model of an interactive situation among rational players. It identifies the players' identities, preferences, and available strategies and how these strategies affect the outcome. Game theory has a wide range of applications, including psychology, evolutionary biology, war, politics, economics, and business. Game theory can have different types, such as cooperative and non-cooperative game theories, with the most common being the strategic game. It has limitations, but it also helps to predict likely outcomes when firms engage in certain behaviors, such as price-fixing and collusion. Game theory helps in understanding the decision-making process in an interactive world, making it possible to prove or disprove a statement.