Game Theory

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A branch of mathematics that considers the interactions of dynamic systems. A rich source of metaphors for describing simple models of behaviour. Game Theory attempts to mathematically capture behaviour in strategic situations, in which an individual's optimal choices depends on the choices of others

Originally defined by the 1944 book "Theory of Games and Economic Behaviour" by John von Neumann and Oskar Morgenstern. Initially the focus was on modelling real-world situations as simple "games" then find an "equilibrium" where each player has selected an optimal strategy that they are unlikely to change. This methodology is not without criticism, and debates continue over its value.

More recent applications have focused on the creation of simple (usually computer driven) models that explain apparently counterintuitive real-world behaviours.

There are a variety of different "games" that each encapsulate the key elements of real situations:

  • Zero Sum Game: A situation in which one person's gain is exactly matched by another's loss. In contrast to a Win/Win Situation
  • Win/Win Situation: A situation in which each participant can benefit without anyone having to lose. In contrast to a Zero Sum Game
  • Prisoners Dilemma: A problem defined in game theory in which the "obvious" strategy is rarely adopted in real-world situations
  • Tragedy of the Commons: A situation where individuals acting independently in their own self-interest can ultimately destroy a shared limited resource even when it is clear that it is not in anyone's long term interest to do so

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The following pages link to here: Game Theory, Prisoners dilemma, Tragedy of the Commons, Win Win Situation, Zero Sum Game

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