Game theory is a branch of applied mathematics which is used to study of strategic situations for the given circumstances and attempts. It is an essential part of engineering, computer science, economics, biology and other branches of sciences to predict the results with maximum accuracy. It is a mathematical framework and analysis the given model for the possible choices for the individuals and organizations so that final decision could be taken. It’s most prominent use is to find the maximum and minimum possibilities of a result which is used to predict the result in a particular situation such as stock market, survey, etc. It analysis and tries to set the behavior and strategy of individuals or organizations.
In economics, game theory is used as a powerful tool to understand the decisions made by individuals or organizational managements and their reversal effects on the organization. Economics uses the game theory to analyze the economical phenomena such as bargaining, auctions, bidding, etc. as well as the human behavior. It keeps specific properties to calculate the payoff, likewise— more than one economic actors (may be individual, firms, companies, parties, etc.), factors to be analyzed and their decisions. According to Game Theory Society, “Game theory studies strategic interaction in competitive and cooperative environments. Only fifty years old, it has already revolutionized economics, and is spreading rapidly to a wide variety of fields. It develops general mathematical formulas and algorithms to identify optimal strategies and to predict the outcome of interactions.”
First known Game theory was discovered in 1938 by Emile Borel’s book Applications aux Jeux D dex Hazard and in 1944 through Theory of Games and Economic Behavior. Later it was developed by many scholars after 1950 and it started to become a necessity in branches of science and technical education such as engineering, biology, social sciences, etc. Game theory studies the game as game consist a set of players and moves (strategies used or prepared by the players) and a specific prediction for every combination. It uses four forms to study—
Extensive Form: is used to formalize the game with a sequential order where game is shown as a tree (which every vertex shows a choice of player.
Normal Form: is presented by a matrix by showing the players, strategies and payoffs.
Characteristic Function Form: It is more complicated and follows the typical equations to determine the payoff of coalitions.
Partition Function Form: It ignores the possible externalizes to calculate the payoff.