Game Theory

Game theory, the formal analysis of conflict and cooperation, has pervaded every area of economics and the study of business strategy in the past quarter-century and exerts increasing influence in evolutionary biology, international relations, and political science, where the rational-choice approach to politics has been highly controversial. In a strategic game, each player chooses a strategy (a rule specifying what action to take for each possible information set) to maximize his or her expected payoff, taking into account that each of the other players is also making a rational strategic choice. In contrast to economic theories of competitive equilibrium, the focus of game theory is on strategic interaction and on what information is available to a player to predict the actions that the other players will take.