Game Theory

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In Chapter 12 in the text, on decision analysis, we discussed methods to aid the individual decision maker. All the decision situations involved one decision maker. There were no competitors whose decisions might alter the decision maker's analysis of a decision situation. However, many situations do, in fact, involve several decision makers who compete with one another to arrive at the best outcome. These types of competitive decision-making situations are the subject of game theory . Although the topic of game theory encompasses a different type of decision situation than does decision analysis, many of the fundamental principles and techniques of decision making apply to game theory as well. Thus, game theory is, in effect, an extension of decision analysis rather than an entirely new topic area.

Game theory addresses decision situations with two or more decision makers in competition .

Anyone who has played card games or board games is familiar with situations in which competing participants develop plans of action to win. Game theory encompasses similar situations in which competing decision makers develop plans of action to win. In addition, game theory consists of several mathematical techniques to aid the decision maker in selecting the plan of action that will result in the best outcome. In this module we will discuss some of those techniques.