Game Theory Basics

Overview

Game theory models strategic interactions where each player's outcome depends on others' choices. It provides tools to predict behavior, identify stable outcomes (equilibria), and design mechanisms that align incentives.

Framework

IRON LAW: Define Players, Strategies, and Payoffs BEFORE Analyzing

Every game requires three elements explicitly defined:
1. Players — who are the decision-makers?
2. Strategies — what choices does each player have?
3. Payoffs — what does each player get for each combination of choices?

Analyzing a "game" without a payoff matrix is just storytelling.