Game Theory :Introduction

Economics game theory , also called the theory of social situations by psychologists is an accurate description of what game theory is about.
Before we start this theory, we must know the meaning of a game –

A game is generally played by one , two or more persons and the participants react according to other participants move. the same way, game theory deals largely with how intelligent individuals interact with one another in an effort to achieve their own goals.

economic theory has three other main branches: decision theory, general equilibrium theory and mechanism design theory. All are closely connected to game theory.

Decision theory can be viewed as a theory of one person games, or a game of a single player against nature. Decision theory is often used in the form of decision analysis, which shows how best to acquire information before making a decision. Eg any investment based decision.

General equilibrium theory can be viewed as a specialized branch of game theory that deals with trade and production, and typically with a relatively large number of individual consumers and producers. It is widely used in the macroeconomic analysis of broad based economic policies such as monetary or tax policy, in finance to analyze stock markets, to study interest and exchange rates and other prices.Eg studying tax policy, trade policy and any other deals ( the reaction of public on such policies)

mechanism design theory asks about the consequences of different types of rules. Naturally this relies heavily on game theory. Questions addressed by mechanism design theory include the design of compensation and wage agreements that effectively spread risk while maintaining incentives, and the design of auctions to maximize revenue, or achieve other goals.


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