What are the assumptions of game theory?

Game theory is a branch of economics that analyzes strategic interactions between individuals or groups. It is based on a set of assumptions that help simplify and model these interactions. The assumptions of game theory include:

1. Rationality: Game theory assumes that all players are rational decision-makers who aim to maximize their own utility or payoff. They are assumed to have well-defined preferences and make choices that are consistent with these preferences.

2. Complete information: Game theory assumes that all players have complete and accurate information about the game, including the rules, strategies available to them, and the payoffs associated with each outcome. This assumption allows players to make informed decisions.

3. Common knowledge: Game theory assumes that all players have common knowledge, meaning that they know that all other players have the same information and are also rational decision-makers. This assumption helps in predicting how players will behave and anticipate each other's actions.

4. Simultaneous or sequential moves: Game theory considers both simultaneous-move games, where players make decisions simultaneously without knowing the others' choices, and sequential-move games, where players take turns making decisions. The assumptions may vary depending on the type of game being analyzed.

5. Finite number of players: Game theory assumes a finite number of players involved in the game. This assumption simplifies the analysis and allows for a more manageable model.

6. Fixed rules and strategies: Game theory assumes that the rules of the game and the strategies available to players are fixed and known to all. This assumption helps in predicting how players will behave and strategize.

7. No external factors: Game theory assumes that there are no external factors or influences that can affect the game's outcome, apart from the players' decisions and actions. This assumption allows for a focused analysis of the strategic interactions between players.

It is important to note that these assumptions may not always hold in real-world situations, but they provide a useful framework for analyzing and understanding strategic interactions in economics and other fields.