That’s a central question: Is game theory useful in a concrete sense or not? Game theory is an area of economics that has enjoyed fantastic public relations. What are the applications of game theory for real life? But the body of knowledge that is known as game theory, at least up to now, has focused mainly on situations where the players are rational.
In principle we could think about interactive situations where players are not fully rational, but nevertheless take into account or anticipate other players’ behaviour. Yes, classical game theory deals with situations where people are fully rational. What is special about game theory is that until now it has been assumed that when the players respond to the other players they respond rationally. But I can do it in many ways and I can respond in many ways.
It’s not like a situation where I’m trying to decide whether to take an umbrella or not, and all I have to think about is the chance it will rain this afternoon. I want to get into the shoes of the other player or players – I want to enter their mind.
These are situations when my reasonable behaviour depends on the way that I perceive or believe that the other participants in the situation will behave. The way I think about game theory is that it’s a part of economic theory, a set of models and concepts that is supposed to capture the way we think about strategic interactive situations. Foreign Policy & International Relations.
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