Game Theory

Game theory is the mathematical study of strategic interaction, where the decisions of each participant (or "player") affect the outcomes for all involved. It explores how individuals, groups, or entities make rational choices when their outcomes depend not just on their own actions but also on the actions of others. One of the central concepts in game theory is the Nash equilibrium, named after mathematician John Nash, which describes a situation where no player can improve their outcome by unilaterally changing their strategy—assuming all other players keep theirs unchanged. In this state, each player is doing the best they can given what the others are doing.

However, the Nash equilibrium does not always lead to the best collective outcome. A classic example of this is the Tragedy of the Commons, where individuals acting in their own self-interest overuse and deplete a shared resource, leading to worse outcomes for everyone. Even though each person’s choice may be "rational" within the structure of the game, the collective result is suboptimal. This highlights a key insight from game theory: rational individual behavior does not always produce rational group outcomes. To change the outcome, we often need to change the structure of the game itself—its incentives, rules, or relationships—so that cooperation and trust become the most advantageous strategies.