what is a game theory?

Answer 1

Game theory is a branch of applied mathematics and economics that studies situations where players choose different actions in an attempt to maximize their returns.

http://en.wikipedia.org/wiki/Game_Theory

Game theory emanates from studies of games such as chess or poker. Everyone knows that in these games, players have to think ahead - devise a strategy based on expected countermoves from the other player(s). Such strategic interaction also characterizes many economic situations, and game theory has therefore proved to be very useful in economic analysis.

The foundations for using game theory in economics were introduced in a monumental study by John von Neumann and Oskar Morgenstern entitled Theory of Games and Economic Behavior (1944).

http://nobelprize.org/nobel_prizes/economics/laureates/1994/press.html

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Answer 2

Game theory is a branch of mathematics concerned with optimal behavior during a "game" between a finite number of players.

It originated from the study of actual games. For example, there is a proof that in chess there is an optimal strategy for at least one of the players for any board position.

It has become extended beyond actual games -- and is applied to situations in many fields. Microeconomics, in particular, has embraced game theory as a way of looking at problems.

John Nash (A BEAUTIFUL MIND) proved that every game of a certain type has a "Nash Equilibrium." This is where everyone acts in a way that maximizes their value -- given that others are also acting to maximize their value.

One of the most famous games is The Prisoner's Dilemma. In the original version of this game, two criminals are separated and interrogated by the police. They are offered a choice: Confess or take the consequences. If neither confess, then the police can't get them on the serious charge, but can put them both away for two years for a minor charge. If one confesses and the other doesn't, the one who confesses goes free and the other one gets life. If both confess, they both get ten years.

The Nash Equilibrium for this game is to confess. You are always better off. If the other guy doesn't confess, then you get no time instead of two years. If the other guy does confess, you get ten years instead of life.

In Economics, this game is applied to many fields. It explains why prices are lower if there is competition, etc.

Answer 3

The Game Theory studies winning strategies for parties involved in situations where their interest conflict with each other. Developed by John von Neumann, the theory has applications to real games (cards, chess, etc.), economics, commerce, politics and some say even military. J. Conway used his theory of surreal numbers to qualitatively evaluate game positions.

OR

The set of theories about the interactions amongst market players in a closed and open situation (or game). Game theory is very important in defining the "moves" that are best for a company to maximize value.


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