Question

Rationality in game theory has two essential ingredients: complete knowledge of one’s own interests and flawless calculation of what actions best serve these interests.

True

False

Answer 1

TRUE

Game theory is a theoretical framework for conceiving social situations among competing players. In some respects, game theory is the science of strategy, or at least the optimal decision-making of independent and competing actors in a strategic setting.

The focus of game theory is the game, which serves as a model of an interactive situation among rational players. The key to game theory is that one player's payoff is contingent on the strategy implemented by the other player. The game identifies the players' identities, preferences, and available strategies and how these strategies affect the outcome. Depending on the model, various other requirements or assumptions may be necessary.

The biggest issue with game theory is that, like most other economic models, it relies on the assumption that people are rational actors that are self-interested and utility-maximizing.