Game Theory was originally an idea of John von Neumann based on the strategy and equilibrium in two person zero sum games and its proof  was the Brouwer fixed-point theorem which has become a standard method in game theory and mathematical economics.

The study and attempt to understand interactions of competing parties using mathematical models to set the probabilities of outcomes is now known as Game Theory. It assumes that the decision makers are thought to be rational and will do what is in their own best interest when considering all their options.

Game Theory can have applications in different kinds of financial markets, trading, investing, social science, systems development, logic and software programming. 

The first focus of Game Theory was on zero-sum games where wins and losses were equal among competitors but it has advanced to look at possible rational decision making paths for different kinds of human interactions in relationships, business, war, and financial markets. 

Game Theory is the science of strategy or decision making that optimizes the best course of action based on the projection of the most likely moves of competitors in a ‘game’ based on projecting what they should do because it is in their own best interest. 

This theory shifts a player away from trying to predict or have an opinion on what a competitor will do to using its principles for projecting their behavior by determining what would be in their best interest to do in their current circumstances. 

The most important question in Game Theory is “If I was my competitor in their current situation with their resources and goals, what would I do?”Game Theory

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By Steve Burns

After a lifelong fascination with financial markets, Steve began investing in 1993 and trading his accounts in 1995. It was love at first trade. After more than 30 successful years in the markets, Steve now dedicates his time to helping traders improve their psychology and profitability. New Trader U offers an extensive blog resource with more than 4,000 original articles, online courses, and best-selling books covering various topics.