How does game theory help in making strategic decisions in business?

Game theory is used in a variety of real-life scenarios. For example, it's used in economics to understand and model the interactions between different market participants. It's also used in political science to model the behavior of voters, politicians, and governments. In biology, game theory is used to understand and predict the evolution of certain behaviors. In computer science, it's used in the design of algorithms and networks. In each of these fields, game theory helps to predict what individuals will do based on their incentives and the actions of others.

Game theory can be explained in various ways. One way is through the use of real-life scenarios or stories that illustrate the principles of game theory. For example, the story of 'Pick a Number' where two players are trying to guess a number between 1 and 100. This story illustrates the concept of perfect information in game theory, where each player knows the other's strategies. Another way to explain game theory is through the use of diagrams or graphs that visually represent the different strategies and outcomes. Additionally, game theory can be explained through mathematical models and equations that represent the strategic interactions between players.

Game theory helps in understanding the thought process of the other player by providing a framework for predicting how players will interact based on their individual strategies and the information they have. It's about understanding the other player's potential moves and responses, and planning your own strategy accordingly. In the context of the 'Pick a Number' game mentioned in the content, both the number setter and the searcher are using game theory to try to outthink each other, each trying to predict the other's strategy.