Game theory is a framework for understanding choice in situations among competing players. Game theory can help players reach optimal decision-making when confronted by independent and competing actors in a strategic setting.

1. Game theory provides a systematic quantitative approach for deciding the best strategy in competitive situations. 2. It provides a framework for competitor’s reactions to the firm actions.

Game theory is the process of modeling the strategic interaction between two or more players in a situation containing set rules and outcomes. Here, we’ll take an introductory look at game theory and the terms involved, and introduce you to a simple method of solving games, called backwards induction.

Its crazy to think that little things you do in everyday life, like making an educated guess on a test, require the process of game theory. Other examples of using game theory to make a decision in everyday life is when to change lanes in traffic, when to ask for something, or even when to wash the dishes.

Economists use ‘Game Theory’ as a tool to analyze economic competition, economic phenomena such as bargaining, mechanism design, auctions, voting theory; experimental economics, political economy, behavioral economics etc. Game theory is applied for determining different strategies in the business world.

A pure strategy provides a complete definition of how a player will play a game. In particular, it determines the move a player will make for any situation they could face. A player’s strategy set is the set of pure strategies available to that player.

In other words, a pure strategy is the one that provides maximum profit or the best outcome to players. Therefore, it is regarded as the best strategy for every player of the game. In the previously cited example (Table-1), the increase in the prices of organizations’ products is the best strategy for both of them.

An optimal strategy is one that provides the best payoff for a player in a game. Optimal Strategy = A strategy that maximizes a player’s expected payoff. Games are of two types: cooperative and noncooperative games.

These games involve only two players; they are called zero-sum games because one player wins whatever the other player loses. …

Poker and gambling are popular examples of zero-sum games since the sum of the amounts won by some players equals the combined losses of the others. Games like chess and tennis, where there is one winner and one loser, are also zero-sum games.

Positive-sum game, in game theory, a term that refers to situations in which the total of gains and losses is greater than zero. Positive-sum outcomes occur in instances of distributive bargaining where different interests are negotiated so that everyone’s needs are met.

A two player game is called a zero-sum game if the sum of the payoffs to each player is constant for all possible outcomes of the game. More specifically, the terms (or coordinates) in each payoff vector must add up to the same value for each payoff vector. Such games are sometimes called constant-sum games instead.

According to this premise, economic development is largely viewed as a zero-sum game in which gains by one community necessarily come at the expense of other communities.

Rock, paper, scissors is an example of a zero-sum game without perfect information. Whenever one player wins, the other loses. We can express this game using a payoff matrix that explains what one player gains with each strategy the players use.

Chess, for example, is a zero-sum game: it is impossible for both players to win (or to lose). Monopoly (if it is not played with the intention of having just one winner) on the other hand, is a non-zero-sum game: all participants can win property from the “bank”.

An example of a zero-sum game is poker, because each player wins exactly the total amount their opponents lose (ignoring the possibility of the house’s cut). Chess, or any other two-player game with one winner and one loser, can also be seen as a zero-sum game: just say the winner wins $1 and the loser loses $1.

A zero-sum game is one in which no wealth is created or destroyed. So, in a two-player zero-sum game, whatever one player wins, the other loses. Therefore, the player share no common interests.

Zero-sum thinking perceives situations as zero-sum games, where one person’s gain would be another’s loss. The term is derived from game theory. Zero-sum bias is a cognitive bias towards zero-sum thinking; it is people’s tendency to intuitively judge that a situation is zero-sum, even when this is not the case.

Effectively, player A wins when they play the same numbers and player B wins when they play different numbers. Note that this is a zero-sum game, because in any situation, the gains and losses of A and B sum to zero.

In the economic theory, a zero-sum game is a representation of a situation where each participant’s loss or gain is exactly balanced by the losses and gains of other participants. Life is not a zero-sum game. If one person wins, it doesn’t mean that someone else needs to lose.

President Donald Trump has often represented foreign trade as a zero sum game, one in which each nation gains and loses in equal measure. Each dollar that America spends buying goods from overseas is a dollar that the country loses.

There’s an old school of though that Adam Smith addressed, going way back when he wrote “The Wealth of Nations” in 1776, called mercantilism, which views trade as a zero-sum game: A country can gain by exporting but loses when it imports. Both countries can gain from both exporting and importing.