Part 1: Introduction and Terms
What is game theory and where did it come from? Game theory is a discipline of mathematics that gives an axiomatic way to represent and examine systems of rational actors. It uses the suspected preferences of the actors to predict outcomes of games with certain rules and/or conditions. For example we could use game theory to determine the prices that two competing duopolies in a local market should set in order to maximize each of their profits.
While some situations studied in modern game theory can trace their roots all the way back to ancient Greece, game theory first emerged as a formal mathematical sub-discipline from the works of mathematician John von Nueman and economist Oskar Morgenstern in the 1940s. In their work, game theory was extremely limited in scope and dealt almost entirely with games limited to two actors and of the “zero sum” variety, meaning one player's losses are always the winnings of the other player. Since then game theory has been applied to a huge range of other fields, most notably economics but also in political science, evolutionary biology, computer science, management, philosophy, epidemiology, and any other discipline that involves competition among self interested agents.
