Noncooperative game theory is concerned with situations where several persons, with possibly different interests, reach decisions independently, and where the final consequence depends upon each of the decisions chosen. In addition, the outcome of the decision making process may be influenced by events that are beyond the decision makers’ control, such as random events determined by nature. We refer to such environments as noncooperative games, and the decision makers are called players. The basic question underlying noncooperative game theory is: which decisions may be viewed “rational” in a given noncooperative game? As far as one-person decision making is concerned, “rationality” reflects the situation where the decision maker holds some preference relation over the decisions available to him, and chooses a most preferred decision. The same principle could be applied to noncooperative games by assuming that each player holds a preference relation over his decisions, and by imposing that players reach optimal decisions, given their preferences. There is, however, an important distinction between one-person decision problems and noncooperative games that complicates a purely decision theoretic approach to the latter. The problem is that every player in a noncooperative game, when evaluating his decisions, should take into account that his opponents will act in their own interest, given their preferences. As such, a theory of rational decision making in noncooperative games should not only require players to act optimally given their preferences, but should also impose that the players’ preferences be compatible with optimal behavior by the opponents.
KeywordsDecision Maker Nash Equilibrium Preference Relation Rationality Concept Optimal Behavior
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