2021, Vol. 2, Issue 2, Part B

Game theory is a mathematical framework used to analyze strategic interactions among rational decision-makers. It plays a vital role in economics and the social sciences by explaining how individuals, firms, and institutions make choices when outcomes depend on the actions of others. This paper introduces the fundamental concepts of game theory, tracing its historical development through the contributions of John von Neumann and John Nash. It examines different types of games, including cooperative and non-cooperative games, as well as zero-sum and non-zero-sum games. Key concepts such as Nash equilibrium, dominant strategies, and payoff matrices are discussed alongside common mathematical models like the Prisoner’s Dilemma and coordination games. The paper also highlights real-world applications of game theory in economics, politics, and sociology, demonstrating its relevance in analyzing competition, cooperation, and conflict. Finally, it addresses the limitations and criticisms of game theory, particularly the strong assumptions regarding rational behavior. Overall, the study emphasizes game theory’s significance as a powerful analytical tool while acknowledging its practical constraints.