ABSTRACT
This chapter provides an overview and a discussion on elements, negotiation application, and limitations of game theory. Game theory is based on the use of mathematical modelling to recommend or predict actions that might be taken in order to maximise a competitive position. There are two main branches of game theory; cooperative and non-cooperative. A cooperative game assumes that the players have full information and are able to form binding agreements, that is, a legally binding contract, whereas a non-cooperative game deals largely with how individuals interact with one another in an effort to achieve their own goals in the absence of all the information, that is, negotiation. One of the best known examples used to illustrate the psychology behind game theory is the Prisoner's Dilemma. Game theory specialists who have sophisticated mathematical software that can compute probable negotiation positions and outcomes can be used to assist in the running of negotiations.
