What is Game Theory?

Game theory is a mathematical and strategic framework used to study interactions and decision-making among rational individuals or entities in various situations, often referred to as “games.” These “games” represent scenarios where the outcome of one participant’s decision depends on the choices made by others. Game theory analyzes these interactions to predict and understand the strategies that participants might adopt to achieve their objectives.

Understanding the Basics of Game Theory

As stated before, in game theory, a “game” refers to a situation where one or more participants, known as “players,” make decisions that affect the outcomes.

• Players: These are the entities involved in the game, such as individuals, companies, or countries, each with their own set of available choices or “strategies.”
• Strategies: Strategies are the possible courses of action that players can choose from to achieve their goals or objectives in the game. A player’s strategy is a plan outlining how they will act in response to different situations or decisions made by others.
• Payoffs: Payoffs represent the rewards or outcomes associated with the combinations of strategies chosen by all the players. Payoffs can be positive (benefits) or negative (costs) and are often quantified in numerical terms.

Payoff matrix

A payoff matrix is a tabular representation used to show the possible outcomes (payoffs) for each player in a game based on the strategies they choose. It presents a comprehensive view of the interactions between players by displaying the payoffs for various combinations of strategies chosen by different participants. Payoff matrices are a valuable tool for analyzing and visualizing the dynamics of strategic interactions.

Zero Sum and Non-Zero Sum Games

Zero-Sum Games: In a zero-sum game, the total gains and losses among the players are always equal. When one player gains something, another player or players necessarily lose an equal amount. Examples include poker or chess, where one player’s win is another’s loss. The sum of the payoffs is always zero.
Non-Zero-Sum Games: In non-zero-sum games, the total gains and losses among the players do not necessarily balance out. This means that cooperation and mutually beneficial outcomes are possible. Most real-world situations fall into this category, where the objective is not
necessarily to defeat opponents but to find mutually beneficial solutions.

Understanding these fundamental elements and concepts is essential for delving deeper into the strategic analysis and applications of game theory.

Hello! I’d highly suggest you watch the movie “A Beautiful Mind” as an accompanying piece to this article. We at Writeups are planning to publish a series of works related to game theory as a sort of guide to getting started with game theory. As an avid film fan, I will be suggesting a new movie to watch with every game theory article we publish. Learning with cinema how fun!!

Author’s note

Written by:
~Avanthikaa Srinivasan