What is game theory?

Why game theory?

• Games that humans invent of course, hence the name, but also
• Many social activities:
• Military strategy making [Sun-Tzu, 1972],
• Political decision making (Machiavelli, 15th Century),
• All types of networks,
• Understanding human reactions to any policy or regulation strategy...
• Nearly all economic activities: competition between firms on a market, investment / R&D strategies of firms, inflation management by a central bank...

• What could/should the individual behaviors be in such situations?
• What could be the collective outcome in this situation?
• How to “design” the situation (game) in order to obtain a desired outcome?

What is a game?

• Who are the players ? $\rightarrow$ Set of players
• Which information is available to each player during the game? $\rightarrow$ Information sets of players
• What are the different actions available to each player during the game? $\rightarrow$ Strategy set of each player
• $\rightarrow$ All outcomes that can result from the decisions of players? $\rightarrow$ Set of potential outcomes in the game
• How much is the value of each outcome for each player? $\rightarrow$ Potential payoffs of players in the game depending on the decisions of all players