Game Theory
strategic interaction modeling
Game theory is the study of strategic decision-making among individuals or agents in environments where the outcome depends not only on oneÔÇÖs own actions but also on the actions of others. In crypto and Web3, game theory is foundational to designing protocols that incentivize honest behavior, cooperation, and alignment across decentralized participants. ItÔÇÖs used to model validator choices, governance voting, attack resistance, and token distribution mechanisms.
Use Case: A blockchain uses game theory to design a consensus mechanism where validators are economically rewarded for honest behavior and penalized for malicious actions, ensuring decentralized trust without a central authority.
Key Concepts:
- Nash Equilibrium ÔÇö A state where no participant can gain by changing strategy alone.
- PrisonerÔÇÖs Dilemma ÔÇö Models the conflict between individual benefit and mutual cooperation.
- Zero-Sum vs. Positive-Sum ÔÇö Competing vs. collaborative economic designs.
- Mechanism Design ÔÇö Builds systems that guide behavior toward desired outcomes.
Summary: Game theory equips blockchain designers with the tools to predict and engineer participant behavior, creating secure, incentive-aligned systems that function without central trust.
| Concept | In Traditional Use | In Crypto/Web3 |
|---|---|---|
| Nash Equilibrium | Predicts stable outcomes in markets or negotiations | Aligns validator or miner incentives for network stability |
| Prisoner’s Dilemma | Explains why rational players may not cooperate | Used in governance and DAO behavior modeling |
| Mechanism Design | Applied in auctions and regulatory policy | Designs tokenomics and staking rewards |
| Zero/Positive-Sum | Zero-sum in competitive markets | Positive-sum in DeFi and staking ecosystems |