Game Theory for Economists Lecture Note

Game theory is widely regarded as having its origins in the mid-nineteenth century with the publication in 1838 of Augustin Cournot’s Researches into the Mathematical Principles of the Theory of Wealth, in which he attempted to explain the underlying rules governing the behaviour of duopolists. However, it was with the publication in 1944 of John von Neumann and Oskar Morgenstern’s The Theory of Games and Economic Behaviour that the modern principles of game theory were formulated.  Game theory has been widely applied to the behaviour of producers with a few or only one competitor.

Game theory is the study of the ways in which interacting choices of economic agents produce outcomes with respect to the preferences (or utilities) of those agents, where the outcomes in question might have been intended by none of the agents. The meaning of this statement will not be clear to the non-expert until each of the italicized words and phrases has been explained and featured in some examples. Doing this will be the main business of this article. First, however, we provide some historical and philosophical context in order to motivate the reader for the technical work ahead.