Game theory analyzes situations where your best move depends on what someone else does, and theirs depends on what you do. That mutual dependence is what separates it from ordinary decision-making under uncertainty.

The parts of a game

A game has players, the strategies available to each, and a payoff for every combination of choices. Nothing in the framework requires anyone to be selfish — the payoffs can represent anything a player values, including the welfare of others.

The central solution concept is the Nash equilibrium, named for John Nash: a combination of strategies where no player improves by changing theirs alone. It is a resting point rather than a good outcome, and the useful cases are precisely those where the equilibrium is bad for everyone. See the prisoner's dilemma.

The distinctions that matter

Zero-sum or not. In a zero-sum game one player's gain is another's loss, and most real situations are not like that — treating a negotiation as zero-sum when trades exist destroys value for both sides. See status games.

One-shot or repeated. Repetition changes everything, because a future gives cooperation a way to pay. Strategies that punish defection and otherwise cooperate do well in repeated play and fail in a single round.

Simultaneous or sequential. Moving first can be an advantage or a disadvantage depending on whether commitment helps you.

Where it bites in practice

Pricing is a game: a cut that competitors match leaves everyone with the same share and less margin. Negotiation is a game, and treating it as zero-sum when it is not is the common error. Hiring is a game where both sides have information the other lacks.

The framework's real use is not calculating an optimum. It is noticing that you are in a game at all — that the other party is reasoning about your reasoning — which changes what a good move looks like. See second-order effects and decision under uncertainty.

The limits

It assumes players know the payoffs and reason consistently, and people do neither. Kahneman's work documents systematic departures. The theory describes the structure of a situation well and predicts what people actually do only roughly.