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Game theory introduction

 

The mathematical theory of games was invented by John Von Neumann and Oskar Morgenstern (1944). Game theory is the study of the ways in which strategic interactions among rational players produce outcomes with respect to the preferences (or utilities) of those players, none of which might have been intended by any of them.

 

Game theory has found its applications in various fields such as Economics, Social

Science, Political Science, Biology, Computer Science etc.

 

The famous example of a game is theĀ· Prisoner's Dilemma game. Suppose that the police

have arrested two people whom they know have committed an armed robbery together. Unfortunately they lack enough admissible evidence to get a jury to convict. They do, however,

have enough evidence to send each prisoner away for two years for theft. The chief inspector

now makes the following offer to each prisoner. If you will confess the robbery implicating

your partner and he does not also confess, then you shall go free and he will get ten years.

If you both confess, you shall each get 5 years. If neither of you confess, then you shall each

get two years for the theft.