Game theory has been studied since the 1940s, it has only recently been applied to the world of finance. Game theory champions garnered the 1994 Nobel Prize in Economics, and today this theory is used to analyze everything from the baseball strike to spectrum and casino licenses’ auctions.
Increasingly, game theory is also making its ways to behavioral finance for better understanding and decision making in financial world.
According to Financial Post , “ Game Theory is a powerful tool for predicting outcomes of a group of interacting firms where an action of a single firm directly affects the payoff of other participating players.
Given that each firm functions as part of a complex web of interactions, any business decision or action taken by a firm impacts multiple entities that interact with or within that firm, and vice versa. Said another way, each decision maker is a player in the game of business. Therefore, when making a decision or choosing a strategy firms must take into account ......