Game Theory

Game theory is defined as “the study of the ways in which strategic interactions among economic agents produce outcomeswith respect to thepreferences of those agents, where the outcomes in question might have been intended by none of the agents” by the Stanford Encyclopedia of Philosophy (Ross 1997). The disciplines most involved in game theory “are mathematics, economics and the other social and behavioral sciences” (McCain 1997). Game theory was created to confront the problem and provide a theory of economic and strategic behavior. In game theory, "games" have always been a metaphor for more serious interactions in human society. But game theory addresses the serious interactions using the metaphor of a game: in these serious interactions, as in games, the individual's choice is essentially a choice of a strategy, and the outcome of the interaction depends on the strategies chosen by each of the participants (McCain1997). John von Neumann a great mathematician founded game theory. The legend of John Von Neumann gives a good insight on who John Von Neumann was and his theory. John von Neumann was a child prodigy, born into a banking family in Budapest, Hungary, “when he was only six years old he could divide eight-digit numbers in his head; by 8 he had mastered calculus and by 12 he was at the graduate level in mathematics” (Halmos 1973). In 1926, at 23, he received a degree in chemical engineering in Zurich and a Ph.D. in mathematics in Budapest. From the start, mathematics provided well enough for him he quickly gained a reputation in set theory, algebra, and quantum mechanics (Halmos 1973). The start of World War II greatly changed his area of interest. According to Halmos “during and after the war, he became one of the best applied mathematicians. John von Neumann's furthered his expertise in hydrodynamics, ballistics, meteorology, game theory, and statistics". By the latter years of World War II von Neumann was playing the part of an executive management