Understanding Legal Affairs Through the Prism of Game Theory

Abstract

Game theory is a field of microeconomics that describes and tries to predict people’s strategic behavior in interactive decision-making settings when one’s choices impact and are impacted by the others’ decisions. Among the game theory models, the prisoner’s dilemma is probably the most recognized. Research using game theory in Law & Management settings is at its infancy, even though game theory relates to corporate legal performance in different ways. First, statutes and regulation create risks and rewards that corporation need to navigate. Additionally, parties may, through contractual mechanisms, define the rules for their future relationship, especially by rewarding cooperation and punishing adverse behavior. Furthermore, game theory is relevant to dispute resolution when parties are offered different strategic and processual choices, with different levels of uncertainty. One rare study of game theory taken in a Law & Management approach deals with public–private partnerships in pharmaceutical research. Finally, the chapter discusses the limitations of simplifying situations into game theory models, focusing on the complexity and subjectivity of what corporations consider to be gains and rewards, as well as the asymmetric distribution of information in real-life scenarios.