Linear Programming Notes IX: Two-Person Zero-Sum Game Theory

Economists use the word rational in a narrow way. To an economist, a rational actor is someone who makes decisions that maximize her (or his) preferences subject to constraints imposed by the environment. So, this actor knows her preferences and knows how to go about optimizing. It is a powerful approach, but it probably is only distantly related to what you mean when you think of yourself as rational. Decision theory describes the behavior of a rational actor when her actions do not influence the behavior of the people around her. Game theory describes the behavior of a rational actor in a strategic situation. Here decisions of other actors determine how well you do. Deciding where to go to dinner can be thought of as a decision problem if all you care about is what you eat and where you eat it. It is a strategic problem if you also want to meet a friend at the restaurant. (In the first case, you go to the restaurant that serves the food you like best. In the second case, the restaurant that you prefer depends not only on the food served, but also on the where your friend goes.)