What Is Game Theory?
Game theory is a tool that’s used to “map out” particular situations and figure out what is likely to happen under various scenarios.
In some cases game theory is employed by means of modeling situations using mathematical equations. In these cases, the equations can be used either to solve for optimal solutions and/or to generate simulations to see how the situation plays out under different scenarios.
However, game theory can also be employed using less rigorous methods. Most situations can be mapped out visually and textually, and then one can use those mappings to better understand situations and draw conclusions.
When Can Game Theory Be Used?
Game theory can be used in situations in which an entity’s payoff (profits, well-being, etc.) is dependent upon actions taken by other entities.
As the world has become globalized and markets have accordingly become more interconnected and complex, game theory has become increasingly applicable to more and more situations. In particular, more situations have become characterized by global ecosystems, in which many players from different countries are involved to different extents and at different levels.