Elements of Game Theory - Part I: Foundations, acts and mechanisms

In this paper, a gentle introduction to Game Theory is presented in the form of basic concepts and examples. Minimax and Nash’s theorem are introduced as the formal definitions for optimal strategies and equilibria in zero-sum and nonzero-sum games. Several elements of cooperative gaming, coalitions, voting ensembles, voting power and collective efficiency are described in brief. Analytical (matrix) and extended (treegraph) forms of game representation is illustrated as the basic tools for identifying optimal strategies and “solutions” in games of any kind. Next, a typology of four standard nonzero-sum games is investigated, analyzing the Nash equilibria and the optimal strategies in each case. Signaling, stance and third-party intermediates are described as very important properties when analyzing strategic moves, while credibility and reputation is described as crucial factors when signaling promises or threats. Utility is introduced as a generalization of typical cost/gain functions and it is used to explain the incentives of irrational players under the scope of “rational irrationality”. Finally, a brief reference is presented for several other more advanced concepts of gaming, including emergence of cooperation, evolutionary stable strategies, two-level games, metagames, hypergames and the Harsanyi transformation.