Foreword

Summary

FOREWORD

Game theory is concerned with strategic interaction among several decision-makers. In a strategic encounter of this kind, each player is aware of the fact that her actions affect the well-being of the other players, just as their actions affect hers. Game theory analyzes how these mutual influences channel the players’ decisions and lead to the ultimate outcome. Since the basic theoretical foundations of game theory were laid in the mid twentieth-century, numerous applications have been found for it in economics and management, as well as in political science, anthropology, sociology, biology and computer science.

It is important to realize that game-theoretic tools do not provide off-the-shelf solutions for predicting players’ behavior in a complex, real-life situation. In the social sciences, y compris in game theory, every model distils only a small number of critical aspects out of the vast plethora of dimensions characterizing a given situation. And it is exclusively in light of those aspects that it proceeds to analyze the situation, using highly stylized hypotheses regarding a whole host of other aspects. The purpose of the model is to provide a framework for systematic thinking about the complicated situation. Insights gained while analyzing the model may enable one to think more intelligently and profoundly about an actual, realistic situation. In this way, game theoretic models have shed light on the modus operandi of many economic and political mechanisms; and insights gained from such models have made a substantial contribution towards a more intelligent design of such mechanisms – incentives for workers in firms, financial markets and auctions for a large variety of assets, policies for diminishing air pollution, voting and election systems, and numerous other types of mechanisms, institutions and organizations.