Game Theory Fundamentals Vocabulary

the study of mathematical models of strategic interaction

“Game theory explains why competitors often end up in suboptimal equilibria.”

a state where no player benefits by unilaterally changing strategy

“Both companies advertising heavily is a Nash equilibrium.”

the reward or outcome a player receives from a strategy

“The payoff matrix shows outcomes for all strategy combinations.”

a strategy that yields the best outcome regardless of opponents' choices

“Defecting is a dominant strategy in the prisoner's dilemma.”

a situation where one player's gain equals another's loss

“Chess is a zero-sum game; one player wins, the other loses.”

a situation where all players can benefit simultaneously

“Trade is often a positive-sum game benefiting all parties.”

a game where rational self-interest leads to worse collective outcomes

“Price wars exemplify the prisoner's dilemma in business.”

a strategy minimizing the maximum possible loss

“The minimax algorithm is used in chess-playing computers.”

a strategy involving randomization among possible moves

“In rock-paper-scissors, the optimal mixed strategy is equal probability.”

a situation where some players have more information than others

“Used car markets suffer from information asymmetry.”