The use of mathematical models to predict behavior in real-world scenarios, exemplified by the Prisoner's Dilemma, is known as what?

• A. Behavioral Economics
• B. Cognitive Psychology
• C. Game Theory
• D. Decision Science

Answer: (C)

Game theory is the study of strategic interactions where each person’s outcome depends on the choices of others, and it uses mathematical models to predict behavior in those interdependent situations. The Prisoner's Dilemma is a classic example: two individuals choose to cooperate or defect, and the payoffs depend on both choices. The model shows how rational, self-interested decisions can lead to a worse collective outcome, highlighting the tension between individual incentives and group welfare. It also introduces the idea of stable outcomes, such as a Nash equilibrium, where no one benefits from changing their strategy given what the other person is doing.

This focus on modeling interdependent decisions with formal payoffs is what makes this the best description. Other fields touch on related aspects—Behavioral Economics looks at how real people deviate from rational predictions due to biases, Cognitive Psychology studies mental processes behind decisions, and Decision Science is broader and interdisciplinary—but the use of mathematical models to predict behavior in strategic, interactive contexts is the hallmark of game theory.