game theory
Game theory studies how people make decisions when the outcome depends on what everyone else does too, more than on what you decide alone.
In plain English
Here is a mistake that plays out in markets across Lagos every single day. Two garri sellers sit side by side, and one drops her price by ₦50 to pull in more customers. The other sees this and panics, drops her price too, and within an hour both of them are selling at a loss, having forgotten that the other woman would react at all. Neither planned for the other's move, and that is the whole story of why prices sometimes crash for no good reason.
Game theory is simply the study of decisions where your best move depends on what someone else decides too. It was built by mathematicians and economists, most famously John Nash, to explain situations where people are not acting alone but reacting to each other, like two market women, two banks setting interest rates, or two countries negotiating a trade deal.
In Nigeria, you see this constantly in fuel stations along a stretch of road. If one station raises its price and nobody follows, it loses customers to the next one. If everyone raises price together, nobody loses anyone. So stations calmly watch each other, and prices often move in step, and not since of a plan but because each owner is guessing what the next owner will do.
In the United Kingdom, the same logic sits behind supermarket price wars, where Tesco, Asda and Sainsbury's watch each other's prices on milk and bread almost daily, each one calculating the other's likely response before making a move.
For someone abroad sending money home, game theory calmly shapes exchange rates too. If everyone rushes to change dollars to naira at once expecting a rate drop, that rush itself can move the rate, because the market is really just a crowd of people each guessing what everyone else is about to do.
Two POS agents on the same street both charge ₦100 on a ₦5,000 withdrawal. One drops to ₦50 hoping to win more customers, but the other matches immediately, so both end up earning less than before, with no extra customers gained by either.
Questions people ask
Is game theory only useful for economists and big companies?
No, it explains everyday things too, like why transport unions coordinate fare increases, or why two shops on the same street rarely undercut each other for long. Anyone whose outcome depends on another person's choice is already living inside a small game.
What is the Nash equilibrium people mention alongside game theory?
It is simply the point where everyone involved has picked their best possible move given what everyone else is doing, so nobody wants to change their choice on their own. Like two fuel stations settling on the same price because neither gains from moving alone.
Does game theory help explain government decisions too?
Very much so. Central banks, for instance, often set interest rates while guessing how other countries or banks will respond, since raising rates alone while others hold steady can attract or repel money differently than if everyone moves together.
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