Game theory (hereafter GT) is a powerful tool for analyzing situations
in which the decisions of multiple agents affect each agent’s payoff.
As such, GT deals with interactive optimization problems. While many
economists in the past few centuries have worked on what can be considered
game-theoretic models, John von Neumann and Oskar Morgenstern
are formally credited as the fathers of modern game theory. Their classic
book “Theory of Games and Economic Behavior”, von Neumann
and Morgenstern (1944), summarizes the basic concepts existing at that
time. GT has since enjoyed an explosion of developments, including the
concept of equilibrium by Nash (1950), games with imperfect information
by Kuhn (1953), cooperative games by Aumann (1959) and Shubik
(1962) and auctions by Vickrey (1961), to name just a few. Citing
Shubik (2002), “In the 50s ... game theory was looked upon as a curiosum
not to be taken seriously by any behavioral scientist. By the late
1980s, game theory in the new industrial organization has taken over ...
game theory has proved its success in many disciplines.”