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When a person (or team or firm or government) decides how to act in dealings with other people (or teams or firms or governments), there must be some cross-effect of their actions; what one does must affect the outcome for the other. For the interaction to become a strategic game, however, we need the participants’ mutual awareness of this cross-effect. What the other person does affects you; if you know this, you can react to his actions, or take advance actions to forestall the bad effects his future actions may have on you and to facilitate any good effects, or even take advance actions so as to alter his future reactions toyour advantage. If you know that the other person knows that what you do affects him, you know that he will be taking similar actions. And so on. It is this mutual awareness of the cross-effects of actions and the actions taken as a result of this awareness that constitute the most interesting aspects of strategy.

When each participant is significant in the interaction, either because each is a large player to start with or because commitments or private information narrow the scope of the relationship to a point where each is an important player within the relationship, we must think of the interaction as a strategic game. Such situations are the rule rather than the exception in business, in politics, and even in social interactions. Therefore, the study of strategic games forms an important part of all fields that analyze these matters.

Avinash Dixit et al. Games of strategy.

New York: W.W. Norton & Coadapted, 2015 (adapted).