Game theory is a way of creating a simplified interactive environment (a ‘game’) that allows researchers to model how people and entities will respond to certain actions.
Game theory can also be understood in the context of the digital assets marketplace. For instance, the Bitcoin market can be described as two types of investors, the holders (i.e. long-term investors) and the opportunists (i.e. short/medium-term investors). In general, holders will buy during low-volatility periods. Opportunists will end such periods and trigger volatility when they enter the market. Thus, each type of investor has two strategies they can use, depending on the behavior of the other type of investor. All are acting in their interests, competing for asymmetric rewards while cooperating to grow the overall value of BTC. This is a perfect application for game theory as it observes two separate groups of persons reacting and responding to the behavior of the other group — an ideal application for game theory.
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