Why do people trade derivatives? If I have information that an asset will increase or decrease in value, I can profit on that information by buying or shorting the asset. Why, then, would anyone trade derivatives when they can just profit by directly trading the asset? How does this work from a theoretical perspective (game theoretic, etc)? This is a very simple question, I'm not sure if this is the right place for it, but thought I would try asking.
There are number of reasons to use derivatives. How practical the following are? It, in turn, depends on the costs compared to the importance (utility) of the case. The costs can be substantial.


Hedging purposes, which comes in many forms. E.g. when you buy stocks in foreign currency, you may want to take only the equity risk, not currency risk. Or you buy a fund or etf that comes with country or industry risk that you want to get rid off. Or you believe equity in the long run but don't like the volatility, so you (try to) hedge volatility away. 
Limit controlling. E.g., if you are working in asset management industry and take care of funds of customers, the portfolio should have set limits: the derivatives may give you an easy way to comply with limits ("you are happy with the instruments you have chosen to your portfolio and want to keep them but without derivatives, say the minimum amount of equity risk would not be attained"). 
Leveraging a (sub-)portfolio. "Sometimes you cannot apply loans. But want to have more exposure than is otherwise possible."
Bearing a particular type of risk, e.g., you may believe that volatility is going to increase from the current level. This particular example can work as a hedge to your portfolio at the same time, since usually the increase of volatility means that portfolio performs badly. Moreover, this is an example of risk that is hard to get in to your portfolio without derivatives.
Quick change of allocation for tactical reasons. Say, evolving crisis either forces you to move quickly, e.g., because of limits as in case 2, or because of the capacity to bear risk (economic reason). And this case includes also the panic moves.
Sometimes, there are other motives behind applying derivatives that somehow build upon the first four cases. E.g. you have a complex company structuring case in your hand and you may have to transfer particular types of risk from one party to the other. To the other this is hedging and to the other risk taking: the derivative use could be classified to be "enablers" of transactions.
In the spirit of previous case, derivatives can be used in product design. E.g. some hedge funds promise to apply certain derivatives strategies. These products (hedge funds) may be targeted to professional investors and retail customer. Another example include index loans, typically marketed to retail customers, and may include exotic derivatives like binary options where the underlying is determined e.g. by the month end values of the last 12 months for a basket of securities. The motivation for options reduces to the first one listed above (hedging): the index loan may include a promise ("a guarantee") that, say 95% of nominal will be preserved in every possible scenario to be faced. So hedging appears to be provided to customers.
"Personal characteristics" like willingness to gamble may apply as reason. These may reduce to the third item.