First, game theory is about determining strategies in different situations with competing of strategies acted out by other agents or players.

 

The prisoner’s Dilemma is the common principle that is used in game theory. 

This principle is based on the how two players influence each other when they are suspected in a crime. When both decide to keep silence and not take any risks, its called cooperation. If either one confess and the other doesn’t , its called defection from a cooperative relationship. It seems like cooperation is the best option with less risk reflected, however, the situation changes when one player decide to take advantage of one another. The one will get ultimate punishment and two players will put their efforts to avoid consequences. This will encourage them to confess in priority. It is easy to examine the possible outcomes through charting out in a matrix. 

​

There are several rules in the game theory:

1. Two players must be able to compete and affect each other in strategic interaction.

2. There must be all possible outcomes. Also, all players have preferences based on the possible outcomes..

3. The outcomes measured by the amount of utility, or value, a player derives from them.

4. There are two different types of game, one shot and repeating games.

5. Nash Equilibrium is when no one player can produce better outcome.

​

Games are either simultaneous-move or sequential move games. The sequential move game is that each player takes turn, whereas, simultaneous-move is when each player does not recognize actions of other player. The simultaneous move is plotted on the matrix and sequential move is plotted on game trees.

The repeated game will use mixed strategy.Both players expect the other to maximize utility by defecting on the last movement or the last game in the series.

​

​