Which of the following is the best definition of game theory?

Question

BlackTom AI · Accepted Answer

Game theory is a branch of economics and mathematics that studies strategic interaction among decision-makers, where the outcome for each participant depends on the actions of all involved. 
Option a: This choice frames game theory around monopolists and price/output decisions, which is too narrow and misses the broader strategic context applicable to any strategic setting, not just monopolies. 
Option b: While product differentiation and market power are studied in various markets, game theory centers on strategic interactions among players, not solely on differentiation in monopolistic competition. This makes the option incomplete as a definition. 
Option c: This choice correctly identifies game theory as a theoretical framework for understanding how firms (and other decision-makers) make decisions in oligopoly, where strategic interdependence matters and the actions of one firm affect others. It captures the core scenario where game-theoretic reasoning is most informative. 
Option d: Perfect competition assumes many buyers and sellers and no individual influence on market price, which aligns with classical equilibrium analysis rather than the strategic interdependence focus of game theory. This makes it an incorrect and too broad characterization for game theory as a framework. 
In summary, the best definition centers on strategic decision-making in oligopoly environments, where firms’ choices are interdependent, which is precisely option c.

MUF0061 Economics Unit 1 - Semester 2, 2025 Revision Quiz - Game Theory (10 - 15 minutes)

Which of the following is the best definition of game theory?

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