Definition
Per (Scotchmer) game theory, “the science of strategy”, blends mathematics and economics. It shows how decisions are interdependent, and how that shapes choices, and therefore helps individuals, or entities referred to as players, including customers, competitors, or legislative bodies, find the optimal outcome for strategies and actions, whether that be for business, biology, philosophy, economics (duh!) psychology… or even warfare!
Why It Matters
Game theory provides insights into possible outcomes and helps predict and explain decisions/strategies made by competing players.
Example
Country A and B committing or not committing to climate change action (asymmetric stag hunt game).
Limitations
The game assumes players are utility maximising rational actors with full information about the game, the rules, and the consequences. (Hayes) Human’s are not always rational, instead our decisions are shaped by cognitive biases, emotions and context. For example, our willingness to pay shifts with expectations and how we frame value in the moment, like how it feels to pay $7 for a coffee in the morning and then paying $7 for a cocktail at night. (“Price Elasticity - the Decision Lab” (2025))
Works cited:
Scotchmer, Liam. “Polonomic Papers.” Polonomic Papers, 2019, polonomicpapers.com/game-theory-explained. Accessed 9 Feb. 2026.
Hayes, Adam. “Game Theory: A Comprehensive Guide.” Investopedia, 27 June 2024, www.investopedia.com/terms/g/gametheory.asp.
“Price Elasticity - the Decision Lab.” The Decision Lab, 2025, thedecisionlab.com/reference-guide/economics/price-elasticity.
