ECON-2006EG Study Guide - Quiz Guide: Best Response, Backward Induction, Gowanus Canal
7 Mar 2021
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Document Summary
Game theory is the study of strategic interactions. We present the basic tools of game theory and explain how they are useful for understanding and analysing many different economic decision. Decision theory: agents optimizes against a fixed environment. Game theory: agent optimizes in an environment that also features interaction with other agents (strategic interaction) Game theory is one of the most important building blocks of modern economics: many different applications ranging from poker to climate policy negotiations; relevant for many areas of business (e. g. oligopoly) Game theory analyses situations in which behaviour of economic actors jointly determine outcomes such that there is room for strategic interaction. To begin, it is important to recognize the three key elements of any game: the players, the strategies, the payoffs. Strategies comprise a complete plan describing how a player will act. A payoff matrix represents the payoffs for each action players can take.
