Game theory is the study of strategy and how people make decisions when in conflict with one another. Thomas Schelling and Robert Aumann won the Nobel prize in economics last year for their efforts to give game theory practical and theoretical depth, respectively. (See my posts of Aug. 14, 2005 questioning the relevance of this economics concept to law departments and Dec. 19, 2005 noting game theory as a major business concept.)
Game theory presumes rationale decision-making by adversaries, but adds the extra fillip that neither can decide what to do without taking into account the actions of the other (Economist, Oct. 15, 2005 at 82). Game theory applies to a company sued repeatedly by the same law firm or a band of plaintiff’s firms. It illuminates the relationship between a law department and a law firm it frequently uses. Game theory has also contributed to the design of auctions, a pure form of strategies in a competitive situation. (See my post of Feb. 1, 2006 on law department auctions.)