The Difference Between Game Theory and Decision Theory

Game Theory assumes (at least) two things: common knowledge of the structure of the game, and mutual best responses by all players.

Decision Theory assumes neither.



The classical decision theorist would look at this picture and reflect that the lesson is that sometimes people do things that are TOTALLY CRAZY.

The more nuanced decision theorist would look at this picture and reflect that the lesson is that sometimes the other party isn't actually playing the game that you think they're playing.

Personally, I side with the latter as the one that you've really got to be worried about.

Either way though, caveat emptor.

Filling in the relevant details of the game is, of course, left as an exercise for the reader.