Why Is Game Theory Important

Game Theory Game theory is a branch of economic theory that studies strategic interaction. It finds application in a broad variety of real life situations ranging from interpersonal interaction (e.g. kids playing rock-paper-scissor), through interaction of multinational companies (e.g. wars for market share of Coca-Cola Company and PepsiCo.) to interaction of blocs of states (such as the Western and Eastern bloc during the Cold War). Game theory has come to prominence during the WWII, when it was used as a means for studying military strategy of belligerent parties, and has remained one of the focal points of economic theory since then. The modern foundations of game theory, however, were laid already in 1920s by American physicist and mathematician John von Neumann who formalized some of the fundamental notions in this field. Together with Oskar Morgenstern, a German-born American mathematician, von Neumann developed further concepts and theories applicable to the interaction of the Allies and the Axis during WWII. Finally, some of the crucial developments of game theory were brought by the work of the late John Nash, who in his 1950 treatise on non-cooperative games introduced a concept of equilibrium which we now know as the Nash equilibrium . Before we

Firstly, the information available to the players may be complete or incomplete, referring to the knowledge of the other players ' payoffs from the game, or to other game-relevant information. Thus, if the information is complete, the player knows what payoffs are associated with individual actions of the other player. Conversely, in a game of incomplete information, the player has more information about herself than the other player does - a vivid example is almost any card game, in which the player knows which card are in her hands, but does not know which cards the other players