Game Theory vs. Ordinary Decision Theory

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Game theory is the reason that economic theories cannot work under the assumption of a rational investor. Too much of our lives is spent thinking about what other people might be thinking, then making decisions based on what we think they might do. In these situations, there’s no way to make predictions based on some sort of algorithm. The outcomes are stochastic over multiple trials.

Due the the complexity, being able to predict what other people will do in a given situation might also be the greatest competitive advantage, but it will likely be an advantage that is short-lived.

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