game theory


Definition of game theory

: the analysis of a situation involving conflicting interests (as in business or military strategy) in terms of gains and losses among opposing players

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Other Words from game theory

game theorist noun

Examples of game theory in a Sentence

Recent Examples on the Web

There is also defensive game theory seeping its way into the NFL that will inevitably slow down the rise of these young quarterbacks. Conor Orr,, "OK, OK, But How Much Would Tom Brady Get From a New Team in Free Agency?," 6 Aug. 2019 Why, then, is game theory used so much in evolutionary biology? Peter Byrne, Quanta Magazine, "Debating the Evolution of Multicellularity," 25 Sep. 2013 Meanwhile, Sandholm’s game theory research, applied in this poker bot, was in part funded by a grant from the US Army Research Office (ARO). Nicolas Rivero, Quartz, "Facebook and the US Army funded an AI that can beat you at poker," 11 July 2019 The roots of cooperation can be endlessly debated, but some part of it is hinted at in the two game theory articles referred to above. Quanta Magazine, "How to Triumph and Cooperate in Game Theory and Evolution," 9 Nov. 2017 Michael Wellman, a professor at the University of Michigan who focuses on game theory, said Pluribus's success against human players is a pretty big deal. Rachel Metz, CNN, "A bot can now beat poker pros at six-player Texas Hold 'Em," 11 July 2019 Iyer said the Army is interested in the underlying mathematics and game theory behind Sandholm’s work, as well as its potential medical applications. Nicolas Rivero, Quartz, "Facebook and the US Army funded an AI that can beat you at poker," 11 July 2019 In their pursuit of survival, men and women employ Machiavellian game theory and adopt a bleak consequentialism. Jiayang Fan, The New Yorker, "Liu Cixin’s War of the Worlds," 17 June 2019 There were no real tools for economists to use in analyzing the dynamics within oligopoly until the application of game theory to economics in the second half of the 20th century. Edward Lotterman, Twin Cities, "Real World Economics: Playing monopoly is more than just rolling the dice," 16 June 2019

These example sentences are selected automatically from various online news sources to reflect current usage of the word 'game theory.' Views expressed in the examples do not represent the opinion of Merriam-Webster or its editors. Send us feedback.

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First Known Use of game theory

1945, in the meaning defined above

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Last Updated

12 Sep 2019

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The first known use of game theory was in 1945

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More Definitions for game theory

game theory


Financial Definition of game theory

What It Is

Game theory is a tool used to analyze strategic behavior by taking into account how participants expect others to behave. Game theory is used to find the optimal outcome from a set of choices by analyzing the costs and benefits to each independent party as they compete with each other.

How It Works

Game theory explores the possible outcomes of a situation in which two or more competing parties look for the course of action that best benefits them. No variables are left to chance, so each possible outcome is derived from the combinations of simultaneous actions by each party.

Game theory is best exemplified by a classic hypothetical situation called the Prisoners' Dilemma. In this scenario, two people are arrested for stealing a car. They will each serve 2 years in prison for their crime.

The case is air-tight, but the police have reason to suspect that the two prisoners are also responsible for a recent string of high-profile bank robberies. Each prisoner is placed in a separate cell. Each is told he is suspected of being a bank robber and questioned separately regarding the robberies. The prisoners cannot communicate with each other.

The prisoners are told that a) if they both confess to the robberies, they'll each serve 3 years for the robberies and the car theft, and b) if only one confesses to the robbery and the other does not, the one who confesses will be rewarded with a 1 year sentence while the other will be punished with a 10 year sentence.

In the game, the prisoners have only two possible actions: confess to the bank robbery, or deny having participated in the bank robbery.

Since there are two players, each with two different strategies, there are four outcomes that are possible:

The best option for both prisoners is to deny committing the robberies and face 2 years in prison for the car theft. But because neither can be guaranteed that the other won't confess, the most likely outcome is that both prisoners will hedge their bets and confess to the robberies -- effectively taking the 10 year sentence off the table and replacing it with the 3 year sentence.

Why It Matters

Economists use game theory to understand the behavior of firms in an oligopoly (think OPEC and other cartels) -- specifically in regards to price fixing, price wars, collusion, etc. Game theory gives economists a way to predict outcomes when firms engage in these kinds of behavior.

Source: Investing Answers

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