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Game theory
Game theory is a theory about decision-making between several actors.
Game theory does not aim to define decision-making in economics and politics. Rather, it describes decision-making situations and explains why, in certain situations, decisions are repeatedly made in the way they are. The starting point is the rational decision-maker who wants to maximise their own utility. Irrational decisions, decisions made with insufficient information, or even a selfless attitude on the part of decision-makers can be observed in reality, but are only taken into account to a limited extent in game theory.
The first works on game theory can be found in the book ‘Liber de ludo aleae’ [A Book on the game of dice], written by Gerolamo Cardano around 1564, which deals with probability theory. Christiaan Huygens wrote the book ‘De ratiociniis in ludo aleæ’ [On logical thinking in dice games] in 1657. In 1713, Charles Waldegrave presented the minimax strategy for the first time. Antoine Augustin Cournot published his work on competition in oligopolies in 1838.
With the work of John von Neumann (e.g. ‘Zur Theorie der Gesellschaftsspiele’ [‘On the Theory of Parlour Games’], 1928), game theory became a separate field of science. At that time, he considered the decisions of fellow players and their strategies in parlour games. Later, these considerations were also applied to negotiation situations and the reactions of actors in politics and economics, as there are comparable situations and similar outcomes here (e.g. ‘The Theory of Games and Economic Behaviour’ by John von Neumann and Oskar Morgenstern, 1944).
Well-known examples from game theory include the prisoner's dilemma, the hawk-dove game and John Forbes Nash, Jr.'s Nash equilibrium. In situations where two hostile parties find themselves in a situation that could easily escalate and where there is little or no communication, a tit-for-tat strategy can often be observed as a way of resolving the situation. This strategy has been described by Anatol Rapoport. In this strategy, both sides gradually take positive actions one after the other in order to avoid provocation and show the other side their positive intention to resolve the situation.
Today, game theory also considers negotiation situations at the international level. It analyses why agreements on public goods, such as the global climate, lead to a solution in some cases, such as the ban on CFCs to protect the ozone layer, while negotiations on CO₂ reduction repeatedly fail or the actors do not adhere to the agreements.
