7Economists often use game theory to understand oligopoly firm
behavior. It helps to predict likely outcomes when firms engage in
certain behaviors,
Game theory is the study of how and why people make decisions
Players:n7ut A strategic decision-maker within the context of the
game
Strategy: A complete plan of action a player will take given the set of circumstances that might arise within the game
Payoff: The payout a player receives from arriving at a particular
outcome (The payout can be in any quantifiable form, from dollars to utility.)
Nash eq: which attempts to determine mathematically and
logically the actions that participants of a game should take to secure the best outcomes for themselves
an optimal outcome where no player has an incentive to deviate
from his chosen strategy after considering an opponent’s cho
ice.
A particular outcome is called a Nash Equilibrium if neither player
will do better by unilaterally changing his/her strategy. Game theory concepts have become hugely important in economics Game Theory has been used to make decisions on price, output, product development, product promotion and other business scenarios