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Game theory is a branch of applied mathematics that helps analyze the behavior of individuals and firms in strategic situations where the outcome depends on the players' choices. It is widely used in economics, political science, psychology, and other fields to study decision-making and interactions between rational decision-makers.
In economics, game theory is used to model and analyze the behavior of market participants, such as buyers, sellers, and competitors. It provides a framework for understanding how economic agents interact and make decisions in various scenarios, including pricing strategies, production decisions, and strategic alliances.
Game theory has many economic applications, including industrial organization, finance, international trade, and public policy. It can be used to analyze market structure and competition, design auction mechanisms, understand financial markets' behavior, and study regulations' impact on economic outcomes. Overall, game theory is an essential tool for economists to understand and predict the behavior of economic agents in various settings.
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