What are the limits of game theory?

What are the limits of game theory?

Game theory has limitations, such as assumptions of rationality, incomplete information, and its applicability to real-world scenarios.

Can you explain the assumption of rationality?

Sure! The assumption of rationality means that players are expected to make decisions that maximize their utility, but this doesn't always reflect human behavior.

What about incomplete information?

Incomplete information occurs when players do not have full knowledge about other players' preferences or strategies, which can lead to suboptimal outcomes.

Are there real-world examples where game theory fails?

Yes, in situations like the stock market or negotiations, human emotions and irrational behaviors can lead to outcomes that game theory can't predict.

How can game theory be improved?

Improvements can include incorporating behavioral economics, considering emotions, and using more complex models that reflect real-world dynamics.