Contract theory

Contract theory is like a game that you play with your friend. You both want something from each other, but you have to agree on how to give it to each other.

For example, let's say your friend has a toy that you want to borrow. You both agree that you will borrow it for one day and bring it back the next day. You also agree that if you don't bring it back, you will have to give your friend something else that is just as valuable as the toy.

This is called a contract. A contract is an agreement that you make with someone to do something, and if you don't do it, there are consequences.

In the real world, contracts are used all the time between businesses, governments, and individuals. They help people to trust each other and make sure that everyone sticks to their promises.

In contract theory, people study how contracts work, why some contracts work better than others, and how to make contracts that are fair for everyone involved. It's like trying to figure out the best way to play the game with your friend so that you both win.