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Game Theory

Game theory is now emerging as a significant alternative to the traditional methodology of studying economics. It is a field of applied mathematics that has as its primary objective the study of circumstances where agents make their strategic decisions in reaction to “live” variables, such as the actions of other agents, as opposed to making decisions in reaction to “dead” variables such as prices. Although the result of many predecessors, game theory in its formal sense came about in 1944 with the publishing of the book Theory of Games and Economic Behavior.

Game theory focuses on the selection of the best option when the costs and advantages of each possibility are not pre-determined, but are instead reliant on the future behaviors of other people. It is applicable to a number of different fields such as economics, political science, military strategy, psychology, even biology. As in the case of economics, it attempts to establish rational strategies for circumstances where results are hinged on the actions taken by other players (who potentially have their own agendas) and not simply on the basis of one’s own decisions and conditions.

Perhaps the most widely known game theorist is mathematician John Forbes Nash, subject of the hit Hollywood movie A Beautiful Mind.

Web Resources On Game Theory

History of Game Theory
Wikipedia: Game Theory

Book Resources On Game Theory

An Introduction to Game Theory by Martin J. Osborne
Game Theory for Applied Economists by Robert Gibbons

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