ABSTRACT
Thus far our interest has been on individual decision making in environments characterized by the concept of state. The latter suggests that the environment is in a way passive, but capable of transiting from one state to another unbeknownst to the decision maker. Yet, it is assumed not to anticipate or react to the latter’s choices. It is not even assumed to have priorities with regard to its own states or those resulting from the choices of the decision maker. It is, in a word, taken to be a non-strategic entity. Clearly, many settings in political economy do not fit this description. Entrepreneurs cannot assume that entering a new market will go unnoticed by the firms already operating in those markets. Political leaders typically design the campaigns explicitly for the purpose of attracting new supporters from the ranks of other parties. The representatives of the latter are an essential part of those designs. Indeed, almost all purposive action of some interest to political economy takes place in a strategic environment, i.e. one characterized by several goal-directed actors who are aware of the presence of each other and of the fact that the outcomes emerge out of the interactions taking place between them. Game theory provides the most important tools for modeling precisely strategic environments.
