If you’re interested in game theory, you’ve likely heard the term “model” thrown around. But what exactly is a model in game theory, and why is it important?

What is Game Theory?

Before we dive into the specifics of game theory models, let’s first establish what game theory is. Game theory is a branch of mathematics that studies decision-making in situations where multiple individuals or entities are involved. These situations are known as “games,” hence the name.

Game theory can be applied to a wide range of fields, from economics to political science to psychology. It’s particularly useful in situations where there are conflicting interests at play, as it provides a framework for understanding how different parties might behave and interact with one another.

What is a Model?

At its most basic level, a model is simply a representation of something else. In the context of game theory, a model is a simplified version of a real-world situation that allows researchers to study and analyze it more easily.

There are many different types of models that can be used in game theory, but they all share some common characteristics. Generally speaking, models are composed of three main elements:

Why Use Models?

So why bother creating these simplified versions of real-world situations? There are several reasons:

Types of Models

There are many different types of models that can be used in game theory, each with its own strengths and weaknesses. Some common types include:

Normal Form Games

Normal form games are perhaps the most well-known type of game theory model. They’re characterized by a matrix that shows each player’s possible actions and payoffs based on the actions taken by themselves and others.

Extensive Form Games

Extensive form games are similar to normal form games, but they also take into account the order in which players take actions. They’re often represented as trees that show all possible sequences of moves.

Cooperative Games

Cooperative games are those in which players can work together to achieve a common goal. These models often involve the use of coalitions (groups of players who agree to work together) and payoffs that are shared among members of the coalition.

The Bottom Line

In conclusion, models are an essential tool in game theory. They allow researchers to simplify complex real-world situations, study them more easily, make predictions about future behavior, and test different assumptions. If you’re interested in game theory, it’s important to have a solid understanding of what models are and how they work.