What is Game Theory?
Game theory is the study of the “strategic mutual relationship among a plurality of decision-making bodies.” To put it simply, it addresses the question, “What would be the best action to take when there is another party involved?”
In other words, when there is yourself and, at least, one other party (the player) involved, you will consider what course of action you should take (the strategy) to best benefit you (the payoff).
Generally, you will need the following three conditions for this game: players, strategy, and payoff.
The players are the people who will be part of the game. You will need two or more players.
The strategy is the options the players have in taking an action. It does not matter how many potential choices or options the players have.
The payoff is the benefit based on what the players are selecting for their actions.
In the next page, we will introduce what is often used as a simple model called the “Prisoner’s Dilemma” to describe the game theory.