Game Theory


best response

the strategy that maximizes the player's well being, given the other player's choice

dominant strategy

the best response for a player regardless of the option chosen by his or her opponent

game theory

the study of how individuals exhibit strategic behavior when decisions are interdependent

mutual interdependence

occurs when the outcomes of a decision depend not only on what the individual does, but on what others do as well

Nash equilibrium

a game outcome in which no participant can gain by a change of strategy if the strategies of others remain unchanged


a market structure of imperfect competition in which a few large firms, each with a degree of market power, sell either standardized products or differentiated products


an outcome from playing a game

payoff matrix

a table that can be used to describe the three components of a game: the players, the strategies, and the payoffs

prisoner's dilemma

a game that demonstrates why two rational players might not cooperate even if it appears to be in their best interest

tit-for-tat strategy

in repeated games, a strategy in which players start out cooperating with opponents and then play the option the opponent played in the round before