Key terms to revise

Altruism: The willingness to bear a cost in order to benefit somebody else.

Cooperation: Participating in a project that is intended to produce mutual benefits.

Dominant strategy: Action that yields the highest payoff for a player, no matter what the other players do

Equilibrium: When a player uses a strategy that is the best response to the strategies of the other players

First mover advantage: When a business can develop a competitive edge through early entry into an industry

Game theory: Study of how people behave in strategic situations

Mixed strategy: Where a player chooses a random strategy

Nash equilibrium: Where all agents in game are pursuing their best possible strategy given the strategies of all other participants

Overt collusion: Formal and open agreements between firms to minimise competition between them

Pareto improvement: A change that at least benefits one person without making anyone else worse off.

Payoff: Reward attributable to each decision made by a player in a game

Positive sum game: Win-win situation perhaps made possible by co-operative behaviour by players

Prisoner's Dilemma: A problem in game theory that demonstrates why two people might not cooperate even if it is in both their best interests to do so

Repeated game: A game in which the same payoffs, players, feasible actions may occur more than once.

Sequential game: Strategic situation in which there is a strict order of play

Tacit collusion: When businesses co-operate but not formally

Zero sum game: A game in which payoff gains and losses of individuals sum to zero, for all combinations of strategies they might pursue.