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Game Theory

Game theory is the study of interacting decision makers. In Economics we usually study the theory of optimal decision making by a single agent-a firm or a consumer-in very simple environments. The strategic interactions of the agents were not very complicated. But Game Theory lay the foundations for a deeper analysis of the behavior of economic agents in more complex environments.

Game theory has been widely used in economics in the last decade, and much progress has been made in clarifying the nature of strategic interaction in economic models. Indeed, most economic behavior can be viewed as special cases of game theory, and a sound understanding of game theory is a necessary component of any economist's set of analytical tools.