Game Theory Fundamentals Vocabulary

the study of mathematical models of strategic interaction

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

Origin: From game + theory, formalized by John von Neumann and Oskar Morgenstern (1944)

a state where no player benefits by unilaterally changing strategy

“Both companies advertising heavily is a Nash equilibrium.”

Origin: Named after John Nash, American mathematician (1928-2015)

the reward or outcome a player receives from a strategy

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

Origin: From pay + off, originally nautical slang for settling accounts

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

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

Origin: Latin dominans `ruling`, from dominare `to rule`

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

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

Origin: From zero + sum, referring to total payoffs equaling zero

a situation where all players can benefit simultaneously

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

Origin: From positive + sum, indicating net positive outcomes

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

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

Origin: Coined by Albert Tucker (1950) as a thought experiment

a strategy minimizing the maximum possible loss

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

Origin: From minimum + maximum

a strategy involving randomization among possible moves

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

Origin: From mixed + strategy (Greek strategia `generalship`)

a situation where some players have more information than others

“Used car markets suffer from information asymmetry.”

Origin: From information + asymmetry (Greek a- `without` + symmetria)