ABSTRACT
This chapter will formally introduce Game Theory. We will introduce the basic ideals of Game Theory. We will discuss the contradictions between individual rationality and collective rationality caused by the Prisoner’s Dilemma and from this foundation introduce the Nash equilibrium. Nash equilibrium is the most important concept for predicting how people formulate decisions and the consequences of decisions in an interactive situation. We will also prove that private property rights and the law can assist in resolving the Prisoner’s Dilemma by aligning individual and collective rationality.
