Game theory is a branch of mathematics that studies strategic decision-making. It can be applied to understand market behavior in a number of ways.
One way game theory can be applied to understand market behavior is by studying how firms compete with each other. In a market with a small number of firms, game theory can be used to analyze how each firm’s actions, such as pricing or advertising, affect the others and the market as a whole.
Another way game theory can be used to understand market behavior is by studying how consumers make decisions. For example, game theory can be used to understand how consumers decide which products to buy, or how they choose which firms to do business with.
Overall, game theory can provide insight into how different actors in a market, such as firms and consumers, make strategic decisions and how those decisions affect the market as a whole.