Game theory is the science of strategy.
Put another way it’s about “anticipating how others will respond to what you are doing and realizing that you can actually change what they are doing,” as Barry Nalebuff, Professor of Management at Yale School of Management, describes in his Big Think interview.
People have been thinking strategically forever, so in order to trace the evolution of this field, you could go back to the dawn of history—certainly the Peloponnesian Wars or Sun Tzu’s “The Art of War.” But game theory as a real science dates back less than 100 years, really to the mathematician John von Neumann, the father of modern game theory. In 1928, shortly before joining the Institute of Advanced Study in Princeton, he published the seminal paper “On the Theory of Parlor Games,” which culminated in the 1944 book “Theory of Games and Economic Behavior,” co-written with economist Oskar Morgenstern. This book, which claims that any economic situation can be understood as a game between two competing actors, really launched the field of game theory.
Understandably, game theory experienced a flurry of interest during the 1940s and 50s—during WWII and the beginnings of the Cold War—as it was mobilized to analyze politics and warfare. In fact, it began essentially as an exercise to locate enemy submarines, as a sort of cat and mouse game, says Nalebuff. “It started really with zero-sum games, the notion that, I’ll find your sub, I’ll destroy you before you destroy me. So one person wins and one person loses.” Around this time, the Prisoner’s Dilemma, the most famous situation in all game theory, was also first theorized.
The next major development in game theory came courtesy of Princeton mathematician John Nash, later the subject of the book and film “A Beautiful Mind.” In 1950 Nash expanded the scope of game theory beyond zero-sum games to include cooperative games, proposing the concept of a Nash equilibrium, or basically a resting point for a game. As Nalebuff explains, this is a “place where what I’m doing is best, given what I think you’re doing, and what you are doing is best, given what you believe that I’m doing.” Up until this point it wasn’t clear that all games has such a resting point, but Nash showed that for the most part, they do.
Over the years, game theory has been applied in fields as diverse as biology, business, political science, and philosophy.
Nash would later go on to share the Nobel Prize in economics with Reinhard Selten and John Harsanyi, two other contributors to economic game theory, in 1994.
To learn more about game theory, visit Stanford’s Encyclopedia of Philosophy.