Game theory is the mathematical study of strategic decision-making — how rational actors choose actions when their outcomes depend on others' choices. Developed by John von Neumann and John Nash (Nobel Prize 1994). Concepts: Nash equilibrium (no player benefits from unilateral change), Prisoner's Dilemma (cooperation breaks down despite mutual benefit), zero-sum games, mixed strategies, mechanism design. Applications: pricing strategy, auctions, antitrust analysis, negotiations, military strategy, evolutionary biology. Examples in business: pricing wars, capacity decisions, R&D races. Game theory's predictive accuracy is limited by assumptions about rationality and information; real human behavior often deviates from theoretical equilibria.
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Game Theory
August 22, 2026 · Aditya Gupta
Finance
Related terms
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The bond market is the global market for debt securities — US Treasuries, corporate bonds, municipal bonds, mortgage-backed…
Bubble
An asset bubble is a sustained rise in asset prices well above fundamental value, driven by speculation rather…
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