Game theory

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Definition


Set of concepts aimed at decision making in situations of competition and conflict (as well as of cooperation and interdependence) under specified rules. Game theory employs games of strategy (such as chess) but not of chance (such as rolling a dice). A strategic game represents a situation where two or more participants are faced with choices of action, by which each may gain or lose, depending on what others choose to do or not to do. The final outcome of a game, therefore, is determined jointly by the strategies chosen by all participants. These are also situations of uncertainty because no participant knows for sure what the other participants are going to decide. Two-person zero-sum games (where one's gain must mean the other's loss) are used by military-strategists. Many-person (non-zero-sum games where it pays to cooperate) are used in study of economic behavior. Games such as prisoner's dilemma (where two players must choose-without communicating with each other-either to cooperate or betray) are used in political theory and union (collective-bargaining) negotiations. In business schools, game theory is closely associated with decision-theory, and is used to study situations where management-psychology can play an important part. Developed by two US mathematicians, Oskar Morgenstern (1902-77) and John von Neumann (1903-57) in their 1944 book 'Theory of Games And Economic Behavior.'

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