Game Theory

Category: Theoretical approaches

Game theory is an analytical tool used to study social situations in which the interests of rational and interdependent actors conflict or converge and those actors have two or more options so they have to make decisions. Game theory is also considered a branch of mathematics. The game theory started with John von Neumann and Oscar Morgenstern’s book Theory of Games and Economic Behavior (1944). Every game consists of two or more players, and each of them is able to choose from a set of strategies and every strategy produces a different individual payoff for a player. The payoffs for a given strategy usually depend on the chosen strategy of other player of players.

The premise of the game theory is that interdependent actors will make independent decisions that are based on each actor’s own interests. The game theory sees the whole society as a matrix of interconnected games and agents. Agents and their actions are shaped and guided by their interests, but also by previous interactions, the behavior of other actors, and outcomes of previous games. Game theory is not interested in the values and morals of individuals and only focuses on the utility of actions in games. Game theory has similarities with rational choice theory, but the biggest difference is that rational action can be employed in situations that are not games, and in interactions with nature.

To be successful in games actors develop different strategies, and that leads to a situation of strategic interdependence of actors. Strategic interdependence exhibits itself in two types of games. The first type of games is zero-sum games, where one player’s gain always and necessarily leads to loss for the other actors. This type of game precludes the possibility of cooperation that will benefit all actors. The second type of games is positive-sum games, in which one or more actors can gain with non of the actors being worse off, which is achieved through a mechanism called Pareto efficient cooperation. The game theory has been applied in evolutionary theory to describe the evolution of rational action through natural selection. Examples of this are the books The Evolution of Cooperation (1984) by Robert Axelrod, and Evolution and the Theory of Games (1982) by John Maynard-Smith.

Game theory is important for social sciences because it can construct testable hypotheses. The examples of research that tests these types of hypotheses are numerous in economics, political science, and sociology. Game theory has been applied in sociology to explain and understand topics like cooperation and trust, the formation of social norms, political power, collective action, the functioning of networks, etc.

Some of the most notable scientists that use game theory are: Jessie Bernard, Raymond Boudon, Michael Burawoy, Samuel James Coleman, Michel Crozier, Jon Elster, Erving Goffman, Robert Axelrod, Phillip Bonachich, Theodore Caplow, Anthony Downs, William Gamson, Herbert Gintis, and Douglas Heckathorn.

Books and articles:

Axelrod, Robert. The Evolution of Cooperation (1984);

Camerer, Colin. Behavioral Game Theory (2003);

Gintis, Herbert. Game Theory Evolving (1999);

Green, Donald and Ian Shapiro. Pathologies of Rational Choice (1994);

Kagel, John H. & Alvin, E. Roth. Handbook of Experimental Economics (1995);

Kreps, David. Game Theory and Economic Modelling (1990);

Maynard-Smith, John. Evolution and the Theory of Games (1982);

Nash, John F. Non Cooperative Games (1950);

Neumann, John von and Oscar Morgenstern. Theory of Games and Economic Behavior (1944);

Owen, Guillermo. Game Theory. 3d ed. (1995);

Rasmusen, Eric. Games and Information, 2nd ed. (1994);