Game Theory Applications in Economic Decision-Making

Abstract

Game theory has become a cornerstone of modern economics, providing a structured framework for analyzing strategic interactions among rational decision-makers. By modeling competitive and cooperative behaviors, game theory enables economists to understand how individuals, firms, and governments make choices in environments where outcomes depend not only on their own actions but also on the actions of others. the applications of game theory in economic decision-making, focusing on both classical and modern approaches. foundational concepts such as Nash equilibrium, dominant strategies, and zero-sum games, and extends to more advanced models including repeated games, Bayesian games, and mechanism design. Case studies highlight applications in pricing strategies, oligopoly competition, auctions, bargaining, and public policy. how game-theoretic models address real-world complexities such as asymmetric information, incomplete contracts, and behavioral deviations from perfect rationality. By bridging mathematical theory with practical economic contexts, this paper demonstrates that game theory is not only a powerful analytical tool but also an essential guide for designing effective strategies and policies in increasingly interconnected and competitive economic systems.