Tuesday, October 11, 2005

What is game theory?

Robert Aumann:
Game theory is the study of interactions from a rational viewpoint. Even though the rationality does not have to be conscious, it is still there in the background. So we are interpreting what we see in the world from a rational viewpoint. In other words, we ask, what is best for people to do when there are other people, other decision-makers, other entities who also optimize their decisions? Game theory is optimal decision-making in the presence of others with different objectives.
Game theory is that corner of economics that seeks to determine the results of all possible interactions between rational actors. Really, it's just math: rationality and interactions are defined in terms of mathematical objects and equilibriums are solved for. So if game theory is the study of rationality, what is the rest of economics?


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