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What is game theory?

mathematical methodology to rigorously model and analyze interactive decision making between:
two or more agents, where the outcome for one agent depends on actions taken by others


Which two components make a game-theoretic model?

1) the game -> formally describes the interactive decision problem
2) the solution concept -> predicts (or normatively prescribes) behavior and outcome of the game


What is the objective of game theory?

understand individual and social behavior, predict social phenomena


What is non-cooperative or Strategic Game Theory?

Possible actions of individual players are the primitives


What is cooperative or coalitional Game theory?

Possible joint actions of groups of players are the primitives


What are the standard assumptions for non-cooperative game theory?

1) rationality (players behave according to well-defined objectives and maximize their own expected utility)
2) strategic reasoning (players use their knowledge of the situation to form "reasonable" expectations of others' behavior)


What does a game need to specify?

- who interacts (the players)
- the rules of the interaction
- the information that agents have at any point
but NOT how players behave!


What are static games?

all players move once and ”simultaneously” -> Normal/strategic form


What are dynamic games?

some players move after observing prior moves ->
Extensive form


What is a solution concept?

a solution concept is a formal rule for predicting how a game will be played. These predictions are called "solutions", and describe which strategies will be adopted by players and, therefore, the result of the game.