Game Theory

By: EconomyWatch   Date: 14 October 2010

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Game Theory is a branch of functional mathematics that is applied to study the decision making process in opposing situations. This kind of a situation arises when two individuals having different objectives act on the same system or share a common resource. It basically examines the strategic interactions between two or more agents. Each agent selects a strategy in respect to the other strategy chosen by the other agent. They try to maximize their return through the application of the game strategy. The theory provides strategies to the agents who take decisions in terms of the social situations. Therefore the theory primarily provides a mathematical process for choosing an Optimum Strategy.

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A Bit of History About Game Theory

The Game Theory owes its existence to popular mathematician John Von Neuman and economist Oskar Morgensten. In their classic “Theory of Games and Economic Behavior” they elaborated on this theory. The theory has contributed a lot towards defining nuclear strategies. It plays a significant role in studying Social Sciences, Evolutionary Theory, Political Science and Ethics. It is also being applied in Cybernetics.

The Game Theory

It can be deduced that the Game Theory is a theory where each decision maker has to himself or herself a course of action determining the outcome, which entail profit or loss expressed in terms of numerical payoffs . The players are aware of the game rules but are unacquainted with the opponent’s strategies. The theory involves probabilistic choices, the ultimate objective being the maximization of individual profit.

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