Thoughts On Game Theory In Economics

2004 words - 8 pages

According to Wikipedia, game theory is a branch of applies mathematics that is used in the social sciences (mostly economics). Game theory can also be defined as a theory of competition stated in terms of gains and losses among opposing players. Game theory tries to mathematically imprison behavior in strategic situations, in which a person’s success in making choices depends on the choices of others. Traditional application of this theory attempt find equilibrium in these games, in equilibrium. Every player of the game has adopted a strategy that they are unlike (Game theory )
To a psychologist, what is known is game theory to economists is known are the theory of social situations which a very accurate description of what game theory is all about. Game theory is appropriate in parlor games like (poker and bridge Research in game theory focuses mostly on how groups of people interact. Game theory has two main branches. The two main branches of game theory include: Cooperative game theory and non-cooperative game theory. Game theory also has a lot of different types including Cooperative and non-cooperative games, other types which I will briefly go over later. In addition to game theory, economic theory has 3 other branches which are all connected to game theory (What is game theory?)
Branches of economic theory:
Decision theory: Decision theory is an area of study of discrete mathematics, related to and of interest to practitioners in all branches of science, engineering and in all human social activities. It is concerned with how real or ideal decision-makers make or should make decisions, and how optimal decisions can be reached (decision theory ). This theory deals with one person game and games of single players against nature. It’s focus on preferences and the formation of beliefs. The most wildly used of this theory argues that preferences among risky alternatives can be described by the maximization of the anticipated value of a numerical utility functions, where utility may depend on a quantity of things, but when it comes to circumstances of interest to the economists frequently depends on money income.(What is game theory? )
General equilibrium theory: this deals with trade and production with a large amount of individual consumers and producers. This theory is mostly used in the macroeconomic analysis of broad based economic policies such as monetary or tax policy, to analyze the stock market, and to study exchange and interest rates and other prices. Recently, political economy has emerged as a combination of general equilibrium theory and game theory which the privet sector of the economy is modeled by general equilibrium theory (What is game theory? )
Mechanism design theory: this theory differs from game theory because game theory takes the rules of the game as they were given while mechanism design theory, ask about the consequences of different types of rules which naturally relies on game theory. This theory...

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