What is game theory?

[ThatOldGuy]

@kelvin_silva

Game theory is the study of strategic decision making. More formally, it is "the study of mathematical models of conflict and cooperation between intelligent rational decision-makers.

It seems to me that for this game theory to work, all actors in the economy must act rationally.

That is with every decision they must choose the option with most cost/benefit ratio.

We know that is absurd, not everyone acts rationally in the economy; people want to buy more than they have, or less, or they want a useless luxury, or just something for fun; and how can anyone make every purchase and decision by weighing in on cost/benefit? Alot of emotion runs through our minds when we buy something.

Here’s Mises in Human Action on the matter of rationality:

Human action is necessarily always rational. The term ‘rational action’ is therefore pleonastic and must be rejected as such. When applied to the ultimate ends of action, the terms rational and irrational are inappropriate and meaningless. The ultimate end of action is always the satisfaction of some desires of the acting man.

I’d say to check the definition of rational that you are using.