The Basic Idea
The Milton Bradley board game, The Game of Life, was not far off the mark. In many ways, life does resemble a game, in which we are all players. There are rules to follow, opponents to compete with, and teammates to cooperate with. Game theory provides models for conceptualizing interactions among competing individuals. Despite its name, game theory is not exclusive to the study of games. It has a wealth of applications, from economics to psychology. This theory is applicable in any situation in which the actions of one party have influence over the actions of the other relevant parties. A key aspect of this theory is that it is based on certain assumptions, including that all involved parties understand the rules of the “game” and that people are rational decision-makers. Of course, humans have the capacity to err and we often make irrational decisions, which means that game theory is not infallible. As a general rule, however, it is a useful tool for predicting the outcomes of certain interactions between decision-makers.
[Game theory is] essentially a structural theory. It uncovers the logical structure of a great variety of conflict situations and describes this structure in mathematical terms. Sometimes the logical structure of a conflict situation admits rational decisions; sometimes it does not
– Anatol Rapoport
