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Game Theory

Game Theory is a mathematical and economic framework for analyzing strategic interactions among decision-makers, referred to as players. Key concepts include players, strategies, payoffs, and types of games, with notable theories such as Nash Equilibrium and the Prisoner's Dilemma illustrating the complexities of cooperation and competition. Its applications span various fields including economics, politics, military strategy, business, biology, and computer science.

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58 views2 pages

Game Theory

Game Theory is a mathematical and economic framework for analyzing strategic interactions among decision-makers, referred to as players. Key concepts include players, strategies, payoffs, and types of games, with notable theories such as Nash Equilibrium and the Prisoner's Dilemma illustrating the complexities of cooperation and competition. Its applications span various fields including economics, politics, military strategy, business, biology, and computer science.

Uploaded by

Rifaqat khan
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as DOCX, PDF, TXT or read online on Scribd

Game Theory is a branch of mathematics and economics that studies strategic interactions

between decision-makers, known as "players." It provides a framework to analyze situations


where the outcome for each participant depends not only on their own choices but also on the
choices of others.

🔍 Core Concepts of Game Theory

1. Players

The individuals, firms, nations, or entities involved in the strategic interaction.

2. Strategies

The possible actions each player can take.

3. Payoffs

The outcomes or rewards each player receives based on the combination of chosen strategies.
These are often represented in utility or profit terms.

4. Games

Games can be:

 Cooperative (players form coalitions or agreements) or Non-cooperative (players act


independently).
 Zero-sum (one player's gain is another's loss) or Non-zero-sum (win-win or lose-lose
scenarios possible).
 Simultaneous (players choose actions without knowledge of the others’ choices) or
Sequential (players move in turns with some information about prior moves).

🧠 Famous Concepts and Theorems

1. Nash Equilibrium

A situation where no player can benefit by unilaterally changing their strategy, given the
strategies of the others. Named after John Nash.

2. Prisoner's Dilemma

A classic example showing why two rational individuals might not cooperate, even if it
appears that it is in their best interest to do so.
3. Dominant Strategy

A strategy that yields a better payoff for a player regardless of what the other players do.

4. Pareto Efficiency

An allocation is Pareto efficient if no player can be made better off without making another
worse off.

🎮 Applications of Game Theory

 Economics: Pricing, auctions, market competition, and negotiation.


 Politics: Voting systems, coalition building, international relations.
 Military Strategy: Deterrence and conflict analysis.
 Business: Strategic planning, mergers, and competitive positioning.
 Biology: Evolutionary strategies and animal behavior.
 Computer Science: Algorithms, artificial intelligence, and cybersecurity.

📘 Example: The Prisoner's Dilemma

Prisoner B Cooperates Prisoner B Defects

Prisoner A Cooperates Both get 1 year A gets 3 years, B goes free

Prisoner A Defects A goes free, B gets 3 years Both get 2 years

Though mutual cooperation yields a better collective outcome, the incentive to betray leads
both to defect, highlighting how rational strategies may lead to suboptimal outcomes.

Game theory helps us understand not just economics, but decision-making in all areas where
interests are interdependent. If you'd like, I can explain specific types of games (like
repeated games, Bayesian games, or evolutionary games) or how game theory applies to a
field you're working in.

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