Strategies and Games, second edition: Theory and Practice, 2nd Edition
- Length: 712 pages
- Edition: 2
- Language: English
- Publisher: The MIT Press
- Publication Date: 2022-08-09
- ISBN-10: 0262046520
- ISBN-13: 9780262046527
- Sales Rank: #2565823 (See Top 100 Books)
The new edition of a widely used introduction to game theory and its applications, with a focus on economics, business, and politics.
This widely used introduction to game theory is rigorous but accessible, unique in its balance between the theoretical and the practical, with examples and applications following almost every theory-driven chapter. In recent years, game theory has become an important methodological tool for all fields of social sciences, biology and computer science. This second edition of Strategies and Games not only takes into account new game theoretical concepts and applications such as bargaining and matching, it also provides an array of chapters on game theory applied to the political arena. New examples, case studies, and applications relevant to a wide range of behavioral disciplines are now included. The authors map out alternate pathways through the book for instructors in economics, business, and political science.
The book contains four parts: strategic form games, extensive form games, asymmetric information games, and cooperative games and matching. Theoretical topics include dominance solutions, Nash equilibrium, Condorcet paradox, backward induction, subgame perfection, repeated and dynamic games, Bayes-Nash equilibrium, mechanism design, auction theory, signaling, the Shapley value, and stable matchings. Applications and case studies include OPEC, voting, poison pills, Treasury auctions, trade agreements, pork-barrel spending, climate change, bargaining and audience costs, markets for lemons, and school choice. Each chapter includes concept checks and tallies end-of-chapter problems. An appendix offers a thorough discussion of single-agent decision theory, which underpins game theory.
Title Page Copyright Dedication Brief Contents Contents Preface Part One. Introduction Chapter 1. A First Look at the Applications 1.1. Games That We Play 1.2. Background 1.3. Examples Exercises Chapter 2. A First Look at the Theory 2.1. Rules of the Game: Background 2.2. Who, What, When: The Extensive Form 2.2.1. Information Sets and Strategies 2.3. Who, What, When: The Normal (or Strategic) Form 2.4. How Much: Von Neumann-Morgenstern Utility Function 2.5. Representation of the Examples Exercises Part Two. Strategic Form Games: Theory and Practice Chapter 3. Strategic Form Games and Dominant Strategies 3.1. Strategic Form Games 3.1.1. Examples 3.1.2. Equivalence with the Extensive Form 3.2. Case Study: The Strategic Form of Art Auctions 3.2.1. Art Auctions: A Description 3.2.2. Art Auctions: The Strategic Form 3.3. Dominant Strategy Solution 3.4. Case Study Again: A Dominant Strategy at the Auction Exercises Chapter 4. Dominance Solvability 4.1. The Idea 4.1.1. Dominated and Undominated Strategies 4.1.2. Iterated Elimination of Dominated Strategies 4.1.3. More Examples 4.2. Case Study: Electing The United Nations Secretary-General 4.3. A More Formal Definition⚠ 4.4. A Discussion Exercises Chapter 5. Nash Equilibrium 5.1. The Concept 5.1.1. Intuition and Definition 5.1.2. Nash Parables 5.2. Examples 5.3. Case Study: Nash Equilibrium in the Animal Kingdom 5.4. Relation Between the Solution Concepts⚠ Exercises Chapter 6. An Application: Cournot Duopoly 6.1. Background 6.2. The Basic Model 6.3. Cournot Nash Equilibrium 6.4. Cartel Solution 6.5. Case Study: OPEC 6.6. Variants on the Main Theme I: A Graphical Analysis⚠ 6.6.1. The IEDS Solution to the Cournot Model 6.7. Variants on the Main Theme II: Stackelberg Model 6.8. Variants on the Main Theme III: Generalization Exercises Chapter 7. Voting and Elections 7.1. Elections, Voting, and Game Theory 7.2. Voting Procedures 7.2.1. Majority Voting 7.2.2. Agenda Setting: an Example 7.3. Individual Rationality versus Collective Rationality 7.3.1. The Condorcet Paradox 7.3.2. A Way Out: Single-Peaked Preferences 7.3.3. Beyond the Condorcet Paradox⚠ 7.4. Competing for Votes 7.4.1. The Hotelling-Downs Model of Political Competition 7.4.2. Courting the Median Voter 7.4.3. Discussion 7.5. More on Voting Procedures Exercises Chapter 8. An Application: The Commons Problem 8.1. Background: What Is the Commons? 8.2. A Simple Model 8.3. Social Optimality 8.4. The Problem Worsens in a Large Population 8.5. Case Study: Global Warming 8.6. Averting a Tragedy Exercises Chapter 9. Mixed Strategies 9.1. Definition and Examples 9.1.1. What Is a Mixed Strategy? 9.1.2. Yet More Examples 9.2. An Implication 9.3. Mixed Strategies Can Dominate Some Pure Strategies 9.3.1. Implications for Dominant Strategy Solution and IEDS 9.4. Mixed Strategies Are Good for Bluffing 9.5. Mixed Strategies and Nash Equilibrium 9.5.1. Mixed-Strategy Nash Equilibria in an Example 9.6. Case Study: Random Drug Testing Exercises Chapter 10. Two Applications: Natural Monopoly and Bankruptcy Law 10.1. Chicken, Symmetric Games, and Symmetric Equilibria 10.1.1. Chicken 10.1.2. Symmetric Games and Symmetric Equilibria 10.2. Natural Monopoly 10.2.1. The Economic Background 10.2.2. A Simple Example 10.2.3. War of Attrition and a General Analysis 10.3. Bankruptcy Law⚠ 10.3.1. The Legal Background 10.3.2. A Numerical Example 10.3.3. A General Analysis Exercises Chapter 11. Zero-Sum Games 11.1. Definition And Examples 11.2. Playing Safe: Maxmin 11.2.1. The Concept 11.2.2. Examples 11.3. Playing Sound: Minmax 11.3.1. The Concept and Examples 11.3.2. Two Results⚠ 11.4. Playing Nash: Playing Both Safe and Sound⚠ Exercises Part Three. Extensive Form Games: Theory and Applications Chapter 12. Extensive Form Games and Backward Induction 12.1. The Extensive Form 12.1.1. A More Formal Treatment⚠ 12.1.2. Strategies, Mixed Strategies, and Chance Nodes 12.2. Perfect Information Games: Definition and Examples 12.3. Backward Induction: Examples 12.3.1. The Power of Commitment 12.4. Backward Induction: A General Result⚠ 12.5. Connection With IEDS in the Strategic Form 12.6. Case Study: Poison Pills as a Vaccine Against Takeovers Exercises Chapter 13. An Application: Research and Development 13.1. Background: R&D, Patents, and Oligopolies 13.1.1. A Patent Race: 8K Television 13.2. A Model of R&D 13.3. Backward Induction: Analysis of the Model 13.4. Some Remarks Exercises Chapter 14. Subgame Perfect Equilibrium 14.1. A Motivating Example 14.2. Subgames and Strategies within Subgames 14.3. Subgame Perfect Equilibrium 14.4. Two More Examples 14.5. Some Remarks 14.6. Case Study: Peace in the World War I Trenches Exercises Chapter 15. Finitely Repeated Games 15.1. Examples and Applications 15.1.1. Three Repeated Games and a Definition 15.1.2. Six Applications 15.2. Finitely Repeated Games 15.2.1. Some General Conclusions⚠ 15.3. Case Study: Treasury Bill Auctions Exercises Chapter 16. Infinitely Repeated Games 16.1. Detour Through Discounting 16.2. Analysis of Example 3: Trigger Strategies and Good Behavior 16.3. The Folk Theorem⚠ 16.4. Repeated Games with Imperfect Detection⚠ Exercises Chapter 17. An Application: Competition and Collusion in the NASDAQ Stock Market 17.1. The Background 17.2. The Analysis 17.2.1. A Model of the NASDAQ Market 17.2.2. Collusion 17.2.3. More on Collusion 17.3. The Broker-Dealer Relationship 17.3.1. Order Preferencing 17.3.2. Dealers Big and Small 17.4. The Epilogue Exercises Chapter 18. An Application: OPEC 18.1. Oil: A Historical Review 18.1.1. Production and Price History 18.2. A Simple Model of the Oil Market 18.3. Oil Prices and the Role of OPEC 18.4. Repeated Games with Demand Uncertainty 18.5. Unobserved Quota Violations⚠ 18.6. Some Further Comments Exercises Chapter 19. An Application: Logrolling and Pork-Barrel Spending 19.1. Earmarks, Pork, and Logrolling 19.2. A Simple Model of Earmark Spending 19.3. Bringing Home the Bacon with Grim Trigger Strategies 19.3.1. Equilibrium Conditions 19.3.2. Comparative Statics 19.4. When Bygones are Bygones⚠ 19.4.1. Renegotiation: A Good Idea? 19.4.2. Hoisted by Your Own Petard? Renegotiation Proofness 19.4.3. Penance Strategy: Renegotiation Proofness 19.4.4. Penance Strategy: Subgame Perfection Exercises Chapter 20. An Application: Trade Agreements 20.1. The Purpose of Trade Agreements 20.2. A Tariff-Setting Game 20.2.1. Free Trade 20.2.2. Tariffs 20.2.3. Government Welfare and the Nash Equilibrium 20.2.4. The Prisoner's Dilemma 20.3. The Repeated Game and the Design of Trade Agreements 20.4. Flexible Trade Agreements⚠ 20.4.1. Free Trade Agreement with No Flexibility 20.4.2. Free Trade Agreement with an Escape Clause Exercises Chapter 21. Dynamic Games with an Application to Global Warming 21.1. Dynamic Games: A Prologue 21.2. A Global Warming Game 21.3. Greenhouse Gas Emissions: Global Optimum 21.3.1. A Computation of the Global Optimum 21.3.2. An Explanation of the Global Optimum 21.3.3. Recommended Global Optimum GHG Levels 21.4. Business as Usual Emission Level and Game Equilibrium 21.4.1. A Computation of the BAU Equilibrium 21.4.2. An Explanation of the BAU Emission Levels 21.4.3. A Comparison of the Globally Optimal and the BAU Outcomes 21.4.4. Special Feature of the Globally Optimal and BAU Strategies 21.5. Dynamic Games: An Epilogue Exercises Chapter 22. Strategic Bargaining 22.1. Introduction 22.1.1. Tales of Bargaining 22.1.2. The Bargaining Problem and Bargaining Theory 22.2. Unanimity Bargaining: Negotiating a Merger Deal 22.2.1. Two-Stage Negotiations 22.2.2. Three-Stage Negotiations 22.2.3. Discussion 22.3. A Generalization: Sequential Bargaining with a Finite Horizon⚠ 22.3.1. The Unique Subgame Perfect Equilibrium 22.3.2. Some Observations 22.3.3. Experimental Evidence: The Ultimatum Game 22.4. Legislative Bargaining 22.4.1. Three Legislators and Two-Stage Negotiations 22.4.2. N Legislators and Two-Stage Negotiations 22.4.3. Qualified Majority Rule 22.5. Epilogue: Costly Bargaining and Conflict Exercises Part Four. Asymmetric Information Games: Theory and Applications Chapter 23. Moral Hazard and Incentives Theory 23.1. Moral Hazard: Examples and a Definition 23.2. A Principal-Agent Model 23.2.1. Some Examples of Incentive Schemes 23.3. The Optimal Incentive Scheme 23.3.1. No Moral Hazard 23.3.2. Moral Hazard 23.4. Some General Conclusions 23.4.1. Extensions and Generalizations 23.5. Case Study: The Rise and Fall of Capitation to Compensate Primary Care Physicians in an HMO Exercises Chapter 24. Games with Incomplete Information 24.1. Some Examples 24.1.1. Some Analysis of the Examples 24.2. A Complete Analysis of Example 4 24.2.1. Bayes-Nash Equilibrium 24.2.2. Pure-Strategy Bayes-Nash 24.2.3. Mixed-Strategy Bayes-Nash Equilibria 24.3. More General Considerations⚠ 24.3.1. A Modified Example 24.3.2. A General Framework 24.4. Dominance-Based Solution Concepts⚠ 24.5. Case Study: "Final Jeopardy!" Exercises Chapter 25. Mechanism Design, the Revelation Principle, and Sales to an Unknown Buyer 25.1. Mechanism Design: The Economic Context 25.2. A Simple Example: Selling to a Buyer with an Unknown Valuation 25.2.1. Known Passion 25.2.2. Unknown Passion 25.3. Mechanism Design and the Revelation Principle 25.3.1. Single Player 25.3.2. Many Players 25.4. A More General Example: Selling Variable Amounts⚠ 25.4.1. Known Type 25.4.2. Unknown Type Exercises Chapter 26. An Application: Auctions 26.1. Background and Examples 26.1.1. Basic Model 26.2. Second-Price Auctions 26.3. First-Price Auctions 26.4. Optimal Auctions⚠ 26.4.1. How Well Do the First- and Second-Price Auctions Do? 26.5. Final Remarks Exercises Chapter 27. An Application: Price Competition with Cost Uncertainty 27.1. A Procurement Procedure 27.1.1. Bayes-Nash Equilibrium: Preliminary Observations 27.1.2. Bayes-Nash Equilibrium 27.2. Bridging Price Competition and Auctions 27.2.1. First-Price Sealed-Bid Auction 27.2.2. Key Takeaway 27.3. Bertrand Price Competition with Incomplete Information⚠ Exercises Chapter 28. Signaling Games and the Lemons Problem 28.1. Motivation and Two Examples 28.1.1. A First Analysis of the Examples 28.2. A Definition, an Equilibrium Concept, and Examples 28.2.1. Definition 28.2.2. Perfect Bayesian Equilibrium 28.2.3. A Further Analysis of the Examples 28.3. Signaling Product Quality 28.3.1. The Bad Can Drive Out the Good 28.3.2. Good Can Signal Quality 28.4. Case Study: Used Cars-A Market for Lemons? 28.5. Concluding Remarks Exercises Chapter 29. An Application: Crisis Bargaining and Escalation 29.1. Tales of Conflict 29.2. Unknown Military Strength and War 29.2.1. Complete Information: No War 29.2.2. Incomplete Information: Bayes-Nash Equilibrium 29.3. To Bluff or not to Bluff? 29.3.1. Signaling Military Strength 29.3.2. In Search of Perfect Bayesian Equilibria That Lead to War⚠ 29.3.3. When Challenging Is a Costly Signal 29.4. Escalation and Audience Costs⚠ 29.4.1. Finding Perfect Bayesian Equilibria 29.5. Case Study: Audience Costs Drivers and the Impact on Conflict Exercises Part Five. Cooperative Games and Matching Chapter 30. Cooperative Games 30.1. Cooperative versus Noncooperative Games 30.1.1. A Tale of Two Games 30.1.2. Motivating Examples 30.2. Modeling Coalitional Games 30.2.1. Games with Transferable Utility 30.2.2. Games with Nontransferable Utility 30.2.3. Solution Concepts 30.3. Solution Concept I: Stability and the Core 30.4. Solution Concept II: The Shapley Value Exercises Chapter 31. Matching Problems 31.1. Motivating Examples 31.1.1. How to Allocate Indivisible Goods without Prices? 31.2. One-To-One Matching Problems 31.2.1. Two-Sided One-to-One Matching Problems: Definitions 31.2.2. Two-Sided One-to-One Matching Problems: Stability 31.2.3. The Boy-Proposing Deferred Acceptance Algorithm 31.2.4. Boy-Optimal versus Girl-Optimal Stable Matchings 31.2.5. Strategic Behavior and Mechanism Design 31.3. One-Sided One-to-One Matching: The Roommate Problem 31.4. Many-to-One Two-Sided Matching Problems: School Choice⚠ 31.4.1. Many-to-One Matching Problems: Definitions 31.4.2. Deferred Acceptance Algorithm 31.5. Epilogue: The Game Theorist as an Engineer Exercises Part Six. Foundations Chapter 32. Calculus and Optimization 32.1. A Calculus Primer 32.1.1. Functions 32.1.2. Slopes 32.1.3. Some Formulas 32.1.4. Concave Functions 32.2. An Optimization Theory Primer 32.2.1. Necessary Conditions 32.2.2. Sufficient Conditions 32.2.3. Feasibility Constraints 32.2.4. Quadratic and Log Functions Exercises Chapter 33. Probability and Expectation 33.1. Probability 33.1.1. Independence and Conditional Probability 33.2. Random Variables and Expectation 33.2.1. Conditional Expectation Exercises Chapter 34. Utility and Expected Utility 34.1. Decision Making Under Certainty 34.2. Decision Making Under Uncertainty 34.2.1. Expected Utility Theorem and the Expected Return Puzzle 34.2.2. Details on the von Neumann-Morgenstern Theorem⚠ 34.2.3. Payoffs in a Game 34.3. Risk Aversion Exercises Chapter 35. Existence of Nash Equilibria 35.1. Definition and Examples 35.1.1. Mathematical Background: Fixed Points 35.2. Existence of Nash Equilibria: Results and Intuition Exercises Index
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