Game Theory in Economics

Game theory is a mathematical framework used to analyze strategic interactions among individuals or groups, where the outcome for each participant depends on the choices of all involved. In economics, it helps explain how people, firms, or countries make decisions in competitive situations, like pricing, market entry, or negotiations. By predicting how rational actors will behave, game theory can reveal optimal strategies and potential outcomes, such as cooperation or conflict. It highlights the importance of anticipating others' actions, making it a valuable tool for understanding economic behavior and decision-making in various contexts.