chapter
G
Pages 29

The theory of games is a branch of mathematics devoted to the study of interdependent decision making. Although some progress was made by Zermelo in 1912 and by Borel during the early 1920s, the theory was not firmly established until John von Neumann proved the fundamental minimax theorem in 1928. This theorem applies to two-person, strictly competitive games, in which one player's payoffs are simply the negatives of the other player's. Experimental games have been used by psychologists to study co-operation and competition in two person and multi-person groups, and economists have applied game theory to the study of bargaining and collective choice. Games are pervasive in economic life. Examples of economic games are the interaction among employees within a firm, the rivalry among firms operating in the same market, the negotiations between a firm and its suppliers, and the economic policy-making of governments in interdependent economies.