GAME THEORY
Presentation Key Points
1. Definition and Overview of Game Theory
2. Importance of Game Theory in Economics
3. Key Concepts (Players, Strategies, Payoffs, Nash Equilibrium))
4. Types of Games (Cooperative vs. Non-Cooperative, Zero-Sum vs. Non-Zero-Sum,
Sequential vs. Simultaneous)
5. Limitations and Criticisms of Game Theory
 Definition and Overview of Game Theory
Game theory, developed by John von Neumann and Oskar Morgenstern in the 1940s, is a
field that studies how people or organizations make strategic decisions when their outcomes
depend on the choices of others (Fudenberg & Tirole, 2024). Think of it as a way to analyze
situations where players, acting in their own best interest, try to get the best possible result for
themselves. It's used in many different fields, from economics to psychology, to understand
and predict behavior in competitive or cooperative scenarios.

Key Concepts
Game theory has concepts that help us understand how people or businesses decide their
actions in strategic situations and predict the outcomes of these interactions.
Players
Players are the decision-makers in the game. They can be individuals, companies, or
countries anyone making choices that affect the outcome. In game theory, understanding
who the players are is important because the game depends on what each player does.
Strategies
A strategy is a plan of action for a player. It is what a player decides to do in the game to
achieve the best possible outcome. Each player chooses their strategy by thinking about what
others might do and how that will affect their own results.
Payoffs
Payoffs are the results or rewards players get from the combination of strategies chosen by
everyone. It can be money, profits, points, or any other benefit or loss. The goal of each
player is usually to maximize their payoff.
Nash Equilibrium
A Nash equilibrium happens when no player can get a better payoff by changing only their
own strategy, while the other players keep their strategies the same. It means the players have
found a stable situation where everyone’s strategy is the best response to the others. This
concept was introduced by John Nash in 1950 and is widely used today to predict outcomes
in economics and business (Nash, 1950; Camerer, 2025).
 Importance of Game Theory
Game theory is important in economics because it helps us understand and predict how
different groups like businesses, individuals, and governments make decisions when their
outcomes depend on what others do. Van Dijk, and De Dreu (2021) narrated that it goes
beyond traditional economic models, which often assume people act in isolation, by
showing how strategic interactions and interdependence play a crucial role. The following
are uses of game theory in business and policy as described by Fan and He, (2024).
Game Theory Helps Explain Strategic Decision-Making
It shows how rational players think ahead and anticipate the actions of their competitors
or partners as it studies how people or businesses make decisions when their outcomes
depend on what others do. For example, in Zimbabwe, mobile network companies like
Econet, NetOne, and TelOne use game theory to decide on pricing their services. Each
company must consider the prices set by the others to avoid losing customers or starting a
damaging price war. For instance, if one company lowers its price, others may respond by
lowering theirs too, leading to reduced profits for all. By anticipating these moves,
companies set prices strategically to stay competitive and profitable.
Promotes Cooperation in Resource Sharing
It helps design agreements so that all parties benefit, as it highlights when cooperation is
better than competition, especially with limited resources. For example, manufacturing
companies might share the costs and use of an expensive research and development (R&D)
facility or equipment. If each company tries to build its own facility, the costs become very
high. By cooperating and sharing the R&D resources, these companies reduce their individual
expenses while benefiting from advanced technology. Game theory helps these companies
design fair agreements that encourage cooperation, outline how to share the facility, and
decide how profits or benefits will be divided. This cooperation helps businesses save money
and speed up innovation, leading to better products and services in the market.
Helps Understand Market Competition and Oligopolies
In markets with few competitors (oligopolies), game theory predicts how firms act
strategically to gain market share or keep prices stable. For example, the supermarket
industry is dominated by a few big chains like OK Zimbabwe, TM Pick ‘n Pay, and Spar
among others. These supermarkets often use game theory to plan promotions and pricing. For
instance, if one chain offers a discount on popular goods, others may quickly respond with
their own promotions to keep customers from switching stores. This creates a kind of
strategic game where each supermarket anticipates the moves of its rivals before deciding
what prices or discounts to offer. Such competition helps the supermarkets keep prices
competitive and attract shoppers but also prevents extreme price wars that could hurt all
businesses. Through this strategic behavior, supermarkets maintain a balance between
competing and coexisting in the market.
Aids Government Policy and Trade Decisions
Game theory helps governments create trade policies and negotiate agreements by
considering how other countries or trading partners might react. It allows governments to
plan strategies that protect local industries while promoting exports, by anticipating possible
moves and counter-moves in trade negotiations. In Zimbabwe, the government uses game
theory to negotiate trade deals with neighboring countries in the Southern African
Development Community (SADC) and other regional blocs. By predicting the bargaining
strategies of neighbors like South Africa and Zambia, Zimbabwe aims to secure better tariffs
and quotas that protect its local industries such as agriculture and manufacturing, while
opening markets for its exports. For instance, when discussing customs duties or import
restrictions, Zimbabwe must forecast responses to avoid trade conflicts or losing competitive
advantages. Game theory helps design policies that balance protecting local jobs with the
benefits of regional trade integration, contributing to economic growth and stability.
Helps Manage Public Goods and Social Dilemmas
Game theory explains social dilemmas where individual interests conflict with group welfare,
like sharing water or managing grazing lands. Public goods, like shared water sources or
grazing lands, can be overused because people act in their own interest instead of
cooperating. In Zimbabwe’s manufacturing sector, companies might share a common waste
disposal facility to treat harmful industrial waste. If one company dumps more waste than
agreed or doesn’t follow disposal rules, it can harm the environment and increase costs for
everyone. Using game theory principles, the companies can agree on fair usage limits and
monitoring rules. They might introduce penalties for companies that break the agreement and
rewards for those who comply. This encourages cooperation and ensures the waste facility is
used sustainably, reducing pollution and costs for all businesses involved.
Provides Tools for Conflict Resolution
By predicting possible outcomes of conflicts and negotiations, game theory supports peaceful
resolution by finding mutually beneficial strategies. Zimbabwean businesses, companies
sometimes face conflicts over resources, contracts, or market share. Game theory helps these
companies model different negotiation strategies and find compromises where all parties gain
something, avoiding costly legal battles or breakdowns in partnerships. It also promotes
communication and trust, making conflict resolution more effective and peaceful by
providing win-win solutions and anticipating others’ moves.
Improves Business Strategy and Decision-Making
Businesses use game theory to plan launch strategies, market entry, and advertising by
predicting how competitors will react. This helps companies make smarter, strategic
decisions that increase their chances of success. A scenario of a Zimbabwean tech company
launching new products , such as mobile apps or digital services, they use game theory to
foresee competitors’ possible responses. For instance, if a startup plans to introduce a new
app feature, game theory helps predict whether competitors will lower their prices, increase
marketing, or create similar features in response. By considering these possible reactions, the
startup can decide whether to speed up the launch, adjust prices, or increase advertising to
stay competitive. This strategic planning helps avoid costly mistakes and better position new
products in the market.
 Types of Games
Cooperative vs. Non-Cooperative Games
Cooperative games (let's work together) are all about teamwork. The players can talk to each
other, make promises, and form groups called coalitions. They agree to work together to get a
better result for the whole group, and then they figure out how to share the rewards. For
example is a labor union negotiating with a company. Instead of each worker trying to get a
raise on their own, they all join together. They agree to act as one big group, and that gives
them more power to get a good deal for everyone. The promise to stick together is a binding
agreement.
Non-cooperative games (every person for themselves) are the opposite. Players can not make
promises they have to keep. Everyone acts on their own, trying to get the best result for
themselves. You have to be smart and guess what the other person will do, because you can
not trust them to do what is best for you. The Prisoner's Dilemma is the perfect example. Two
people are in a situation where they could help each other out by staying silent, but they can
not be sure the other person will not betray them. Since there is no trust or binding
agreement, both players end up making the safe choice for themselves, which leads to a
worse outcome for both of them. It shows how acting alone can hurt everyone in the end.
Zero-Sum vs. Non-Zero-Sum Games
In zero-sum games (I win, you lose), one player’s gain is exactly another player’s loss, so
the total benefit is zero. A most likely scenario of where one company's gain comes
directly and entirely from another company's loss. The total market size or available
resources do not change, so for one business to succeed, a competitor must fail or lose
market share. For example, when two companies are in a bidding war to acquire a third
company, only one will be successful. The winning bid represents a gain for the acquiring
company, but it's a direct loss of that opportunity for the other.
Non-zero-sum games (we can all win, or we can all lose )allow for mutual gains or
losses, where all players can benefit or lose together. If two companies work together on a
project, they can create something that brings in more profit than either could have made
alone. They both gain. On the other hand, if two companies get into a price war, they both
end up losing money and hurting each other. The outcome is not tied to one person's gain
and another's loss; it is about mutual benefit or mutual harm.
Sequential vs. Simultaneous Moves
In sequential games (It is your turn), players take turns making moves, and each player can
observe previous actions before deciding. For instance, one company acts first, and their
competitors can observe that action before they make their own decision. The first mover has
a first-mover advantage or disadvantage, depending on the situation. An example could be a
price-setting game where one firm sets a price, and the competitor responds after seeing it.
In a simultaneous game (We all jump at the same time), companies make their decisions
without knowing what their competitors are doing at that exact moment. They have to
anticipate their rivals' moves. For instance, in a sealed-bid auction for a government contract,
companies submit their bids at the same time without knowing what their competitors have
offered, the firm with the lowest bid wins. Each company must decide on their bid amount by
guessing how high or low their rivals will go. This can lead to a pricing war if both
companies think lowering their price is the best way to win the bid.

Limitations and Criticisms of Game Theory
Assumes Rationality
Game theory assumes that all players are perfectly rational and always try to maximize their
benefits. In real life, people often behave irrationally due to emotions, biases, or incomplete
information. For example, sometimes people cooperate out of fairness or loyalty, not just
self-interest (Camerer, 2025). This makes game theory predictions less reliable for real-world
human behavior.
Complexity in Large or Dynamic Games
Game theory becomes very complex when there are many players or actions involved.
Predicting the best moves in these situations is difficult because the number of possible
strategies and outcomes grows very large. This makes it hard for businesses to calculate the
exact best decision to make. For instance, in the global smartphone market, companies like
Samsung, Apple, and others compete with many products, features, prices, and marketing
strategies. Each company must consider not only its own actions but also anticipate hundreds
of possible moves by many competitors and consumers. The large number of players and
strategies makes it almost impossible to predict exactly how the market will evolve.
Assumes Complete and Perfect Information
Game theory often assumes that all players know the rules, payoffs, and strategies available
to everyone (Singh, et al , (2024). But in reality, players usually have incomplete information,
which affects their decisions and outcomes. For example, Zimbabwe’s beverage industry, an
example of game theory usage can be seen in the price competition between Varun Beverages
and Delta Beverages. When Varun Beverages entered the market, they used pricing strategies
such as selling 2-litre bottles of Pepsi at half the price of competitors. This aggressive pricing
tactic aimed to attract customers quickly and gain market share. Delta Beverages, the
established player, had to decide how to respond whether to lower their prices to stay
competitive or keep prices high to maintain profits making both players anticipate each
other's moves and adjust their strategies accordingly.
Ignores Psychological and Social Factors
Game theory assumes that players are perfectly rational, meaning they always act to
maximize their own benefit. But in real life, people’s decisions are often influenced by
feelings, social norms, trust, honesty, fairness, and emotions. These human factors can make
people act differently than what pure game theory predicts. For example, in business
negotiations, a company may trust partners and make concessions even if strict calculations
suggest they should not, or, employees might cooperate out of loyalty rather than personal
gain, which standard game theory doesn’t fully capture. Sometimes people care about
fairness more than just winning. This limitation means game theory can miss important parts
of how people behave because it struggles to include these psychological and social
influences..
In conclusion, game theory is a tool which is used for understanding how people and
businesses make decisions when their outcomes depend on others’ choices. It helps predict
behavior in economics, business, and many fields by providing a clear way to analyze
strategies and possible results. For students and professionals in economics and business,
learning game theory, offers valuable insights into competition, cooperation, and negotiation,
helping make smarter decisions. Game theory reveals the strategic thinking behind companies
competing in the market or countries negotiating trade deals. Game theory remains one of
the best ways to study and explain complex decision-making situations even it has some
limitations like assuming everyone is perfectly rational and sometimes ignoring emotions.
REFERENCES
1. Nash Jr, J.F., 1950. Equilibrium points in n-person games. Proceedings of the
national academy of sciences, 36(1), pp.48-49.
2. Klemperer, P., 2018. Auctions: theory and practice.
3. Osborne, M.J., 2004. An introduction to game theory (Vol. 3, No. 3). New York:
Oxford university press.
4. Rochet, J.C., 2025. Jean Tirole (1953–). In The Palgrave Companion to MIT
Economics (pp. 697-714). Cham: Springer Nature Switzerland.
5. Samuelson, L., 2016. Game theory in economics and beyond. Journal of Economic
Perspectives, 30(4), pp.107-130
6. Van Dijk, E. and De Dreu, C.K., 2021. Experimental games and social decision
making. Annual Review of Psychology, 72(1), pp.415-438
7. Fan, C., Chen, J., Jin, Y. and He, H., 2024, March. Can large language models serve
as rational players in game theory? a systematic analysis. In Proceedings of the AAAI
Conference on Artificial Intelligence (Vol. 38, No. 16, pp. 17960-17967).
8. Kastelic, J., Pi, B. and Perc, M., 2024. Cooperation in the management of charitable
resource flows. Chaos, Solitons & Fractals, 187, p.115395.
9. Newton, J., 2018. Evolutionary game theory: A renaissance. Games, 9(2), p.31.
10. Singh, A.P., Saxena, R., Saxena, S. and Maurya, N.K., 2024. Mind Unveiled: cuttingedge neuroscience and precision brain mapping. Asian Journal of Current Research,
9(3), pp.181-195.