This is a field of study that examines the rational strategies of players in competitive game situations (such as pricing products against a rival), simplified to give us theoretical insights. It has also added much to the business vocabulary. A 'zero-sum' game is one in which A's gain is B's loss. The 'Nash equilibrium', named after the theory's most famous exponent John Nash, is a stable scenario where all players are at their payoff maximising strategies, under the condition that nobody changes strategy. This often makes for a 'gnash equilibrium'-if it leaves everybody unhappy. Breaking such a deadlock necessitates the hunt for a fresh equilibrium.

An interesting non-zero-sum game is the 'Prisoner's Dilemma'. Two buddies are arrested under the suspicion of a joint bank robbery. Kept in separate cells, each is told that he goes scot-free if he rats on the other. If neither speaks up, they are both let off on lack of evidence. If one betrays the other, the betrayer escapes but the other is jailed for life. If both rat on each other, both get light sentences. The dilemma: neither knows which of the two options to take without knowing the other's mind. This example is often used to argue against the belief that individual self-interest invariably delivers a collectively optimal outcome.

An equally interesting game is the 'ultimatum game'. Assume A has 10 one-rupee coins, of which he can choose to give any number to partner B, who can choose to either accept the division or reject it. If B rejects the deal, neither gets any coins. Self-interest 'rationality' dictates that A should offer B just one coin, keeping nine, and B should accept it (or else get nothing). Again, a case of individual self-interest giving a collectively sad result. But this so-called rationality never works in real-life test situations. Human behaviour comes into force; B would rather do with nothing than be treated shabbily, and A, aware of the human sense of fairness, prefers to offer an 'even' deal than risk losing everything. From a zoom-out perspective, this is indeed a far more enlightened form of rationality. Zoom further out, though, and you might chuckle that it makes even more sense for the two partners to keep all 10 coins together for the joint utility of both.