Game theory is not what most people think of when we hear the word “game”. Game theory provides conceptual models and logical explanations to describe and predict the decisions rational agents make and the strategies they choose when they interact with other rational agents.

Decisions are often made in an interactive environment where the strategies people adopt, the decisions they make, and the actions they take, are all based on – or are in a reaction to – the decisions of others. This can be true in business, politics, interpersonal relations, and competitive environments. This chapter on game theory includes the most commonly used example in game theory, the prisoner’s dilemma, as well as Nash equilibrium which explains why two or more people in games may often settle on outcomes that are mutually non-optimal. Different types and structures of common real-world games are discussed, including zero-sum games, cooperative and non-cooperative games, tit-for-tat strategy, and social choice theory.