Game theory is the theory of independent and interdependent decision making. It is concerned with decision making in organizations where the outcome depends on the decisions of two or more autonomous players, one of which may be nature itself, and where no single decision maker has full control over the outcomes. Obviously, games like chess and Go fall within the ambit of game theory, but so do many other social situations which are not commonly regarded as games in the everyday sense of the word.
There are three categories of games: games of skill; games of chance; and games of strategy. Games of skill are one-player games whose defining property is the existence of a single player who has complete control over all the outcomes.
Games of chance are one-player games against nature. Unlike games of skill, the player does not control the outcomes completely and strategic selections do not lead inexorably to certain outcomes. The outcomes of a game of chance depend partly on the player’s choices and partly on nature, who is a second player. Games of chance are further categorized as either involving risk or involving uncertainty. In the former, the player knows the probability of each of nature’s responses and therefore knows the probability of success for each of his or her strategies. In games of chance involving uncertainty, probabilities cannot meaningfully be assigned to any of nature’s responses (Colman 1982), so the player’s outcomes are uncertain and the probability of success unknown.
Games of strategy are games involving two or more players, not including nature, each of whom has partial control over the outcomes. In a way, since the players cannot as-sign probabilities to each other’s choices, games of strategy are games involving uncer-tainty. They can be sub-divided into two-player games and multi-player games. Within each of these two sub-divisions, there are three further sub-categories depending on the way in which the pay-off functions are related to one another – whether the player’s interests are completely coincident; completely conflicting; or partly coincident and party conflicting.