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Games, theory of

A theoretical analysis of two types of situation: (a) the situation of pure conflict, where the gains made by one ‘player’ are the losses of the other or others; and (b) the situation of mixed conflict and cooperation, where ‘players’ may cooperate to increase their joint pay­off, but conflict arises over its division. The theory attempts to abstract the essential elements of a wide range of economic, political and social situations. For example, the nuclear arms race, the behaviour of oligopolists and people playing poker can be shown to have important similarities which permit general analysis. Game theory is essentially concerned with the question of whether in the various situations of conflict and cooperation self-seeking behaviour by the players will lead to a determinate equilibrium. Its originators were J. von Neumann and O. Morgenstern.

Reference: The Penguin Dictionary og Economics, 3rd edt.