What are the differences between cooperative and non-cooperative game theory?

What are the differences between cooperative and non-cooperative game theory?

Cooperative game theory focuses on how players can work together to achieve better outcomes, while non-cooperative game theory examines how players make decisions independently, often leading to competition.

Can you give me an example of each type?

Sure! In cooperative game theory, a group of firms might form a cartel to maximize profits together. In non-cooperative game theory, two companies might compete for market share without any collaboration.

What are some real-world applications of these theories?

Cooperative game theory is often used in economics for joint ventures, while non-cooperative game theory applies to competitive markets, auctions, and negotiations.

How do these theories relate to decision-making?

They influence decision-making by determining whether players will collaborate for mutual benefit or act independently to maximize their own payoffs.