ABSTRACT
Strategic interactions between economic agents can be analysed using game theory. This requires the relevant strategic interactions to be represented in the form of a game. For most people, the word 'game' brings to mind card- and board-games or sports. This chapter describes some of the 'classic' simultaneous-move games. The prisoner's dilemma is perhaps the most canonical simultaneous-move game. In this game, two criminals are being separately questioned about a crime and they have no way of communicating with each other. A subgame perfect equilibrium exists where each player's chosen actions are Nash equilibrium in every subgame. One of the advantages of game theory is that it can make sometimes very complicated environments to be analysed relatively simply. Game theory also has the advantage of making explicit all the assumptions being made.
