Game Theory

Manfred J. Holler

Game theory models the interaction of rational decision makers in situations of conflict and coordination when the decisions of at least two players determine the outcome. We assume that (1) all players know the context and (2) all players know that all other players know the context. The assumptions of common knowledge and strategic decision making define a game. Decisions are strategy choices. The strategy si of player i is the plan of how to act at various stages of the game when it is i 's turn to make a move. The strategy choices of all players determine the outcome. Each player evaluates alternative outcomes. Player i 's evaluation is expressed in terms of payoffs that derive from a utility function ui mapping the outcomes into the space of real numbers. To account for uncertain outcomes, we assume that ui satisfies the expected utility hypothesis. The strategic form n ...

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