Game Theory
Plain definition
Game theory is the mathematical study of strategic interaction: how decision-makers choose when their payoffs depend on the choices of others.
In economics
It is the core toolkit of modern microeconomics, used to model oligopoly behavior, auctions, bargaining, voting, and mechanism design. It distinguishes cooperative games (binding agreements possible) from non-cooperative games (each player acts alone).
Example
Economists use game theory to explain why airlines match each other's fares, why OPEC members cheat on quotas, and how eBay's auction rules shape bidding.
Common confusion
Game theory is not about board games or gambling; 'game' means any strategic situation, and most game theory has nothing to do with entertainment.