Economic of strategy

                         Economics of strategy


Economic and other rational decision making involves choosing one of the available actions for the environment that the decision maker is facing, given his or her objectives. Rational decision making and the subsequent choice of action depend on these two primary factors. Economics of strategy is concerned with how a rational decision maker’s behavior in choosing an action can be explained by logical and strategic reasoning. A simple decision problem can be viewed as the simplest strategic problem, when there is only one agent for a given environment. Many economic problems, however, involve multiple decision makers. Our primary goal in economics of strategy is to provide a systematic analysis of how each decision maker behaves and how the strategic logics of the decision makers interact. The primary tool researchers use in strategic analysis is game theory. Game theory provides us with a systematic and logical method for studying decision-making problems that involve multiple decision makers. Game theory has been applied in many areas of economic studies, such as industrial organization and strategic international trade. Application of game theory has different implications, depending on the specific economic environment. To facilitate our understanding of how rational and strategic decisions are made, we focus on firms’ strategic behavior in settings with different market structures. We review necessary and commonly used concepts and modeling techniques of game theory and apply them in analyzing firms’ strategic behavior.




                                                             Urooj Qureshi