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Economic theory is based on the assumption that individuals pursue their self-interest. Each person makes decisions based on the costs and benefits that he or she perceives. This group of readings explores the relationship between self-interest and the good of the group using the prisoner's dilemma, which is an example of a technique called game theory. Game theory is an analysis of interactions in which the outcome a person faces depends not only on his strategy of action, but also on the strategies of others. Since its development in the 1940s, game theory has found important uses in many fields, such as economics, political science, psychology, and biology.
The insights given by the prisoner's dilemma lead to discussions of self-interest and altruism, of how cooperation can arise in a world of self-interested individuals, and of how people's actions can be coordinated.
After you complete this unit, you should be able to: