Sarwat Jahan and Ahmed Saber Mahmud
Anyone who has had to make a strategic decision taking into account what others will do has used game theory. Think of a game of chess. The outcome of the game depends not only on one participant’s move, but also on the actions of the opponent. When choosing a course of action—in other words, a “strategy”—a player must take into account the opponent’s choices. But the opponent’s choices in turn are based on thinking about the course of action the player might take. Game theory studies this interdependent decision making and identifies the optimal strategy—that is, the best course of action—for each player in response to the actions of others and how this leads to an equilibrium outcome, in which no players have a reason to change their strategy.
Because situations involving interdependent decisions arise frequently, so does the potential application of game theory in strategic thinking. Businesses competing in a market, diplomats negotiating a treaty, gamblers betting in a card game, and even those contemplating proposing marriage can use game theory.