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What is Game Theory?
Game Theory is a method for determining how and why people make reasonable decisions.
Although it is commonly thought to be related to economics, it has also been employed in biology to understand evolution and, more recently, in business and consumer and other decision-making.
Understanding Game Theory
Game theory is the study of mathematical models of rational agents’ strategic interactions. It finds use in all areas of social science, as well as logic, systems science, and computer science. It was designed to address two-person zero-sum games in which each participant’s gains or losses are exactly balanced by those of the other participants. Game theory today applies to a wide range of behavioral relationships in the twenty-first century; it is an umbrella word for the science of logical decision making in people, animals, and computers.
The underlying assumption of game theory is that people behave rationally, making decisions based on the best possible outcome for them given the likely behavior of others.
As a result, people may wind up with a less optimum outcome merely because they are aware of how others are going to behave. They make a concession and accept a less favorable outcome, for example, to avoid dispute or because the penalties of improper behavior are too severe.
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