1 - Strategic form games

Summary

Man is a social animal. Our notions about the world and ourselves are indissolubly linked with the way we acquired those notions and experienced them together with our family and friends in kindergarten and at school and work. Some of our social encounters get us into confrontations with others as we seek to secure some gain for ourselves or improve our standing. Other encounters find us primarily cooperating with others in an effort to achieve a common goal. But all social encounters share one salient and important attribute: the action chosen by each of the participants in the encounter affects the other participants. That is what game theory is about.

Game theory deals with the behavior of individuals in a social environment where the actions of each individual affect the others. Game theory analyzes the considerations that rational participants entertain when deciding on their moves, and how such considerations affect the moves they choose to make.

The participants may be, for example, individual employees on the job, commercial firms in the economic market, or nations in the international arena. In order not to restrict the context of the study ab initio, such individuals are habitually referred to as “players” and the interaction between them is called a “game.”