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An Introduction to Applicable Game Theory

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  • Robert Gibbons

Abstract

This paper offers an introduction to game theory for applied economists. I try to give simple definitions and intuitive examples of the basic kinds of games and their solution concepts. There are four kinds of games: static or dynamic, and complete or incomplete information. ( Complete information means there is no private information.) The corresponding solution concepts are: Nash equilibrium in static games of complete information; backwards induction (or subgame-perfect Nash equilibrium) in dynamic games of complete information; Bayesian Nash equilibrium in static games with incomplete information; and perfect Bayesian (or sequential) equilibrium in dynamic games with incomplete information. The main theme of the paper is that these solution concepts are closely linked. As we consider progressively richer games, we progressively strengthen the solution concept, to rule out implausible equilibria in the richer games that would survive if we applied solution concepts available for simpler games. In each case, the stronger solution concept differs from the weaker concept only for the richer games, not for the simpler games.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Technical Working Papers with number 0199.

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Date of creation: Jul 1997
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Publication status: published as Journal of Economic Perspectives, vol.11, pp.127-149. Winter, 1997.
Handle: RePEc:nbr:nberte:0199

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  1. Benabou, R. & Laroque, G., 1989. "Using Privileged Information To Manipulate Markets: Insiders, Gurus, And Credibility," Working papers 513, Massachusetts Institute of Technology (MIT), Department of Economics.
  2. Kreps, David M & Wilson, Robert, 1982. "Sequential Equilibria," Econometrica, Econometric Society, vol. 50(4), pages 863-94, July.
  3. Peter Cramton & Joseph S. Tracy, 1992. "Strikes and Holdouts in Wage Bargaining: Theory and Data," Papers of Peter Cramton 92aer, University of Maryland, Department of Economics - Peter Cramton, revised 09 Jun 1998.
  4. Harsanyi, John C, 1995. "Games with Incomplete Information," American Economic Review, American Economic Association, vol. 85(3), pages 291-303, June.
  5. Spence, A Michael, 1973. "Job Market Signaling," The Quarterly Journal of Economics, MIT Press, vol. 87(3), pages 355-74, August.
  6. H. Peyton Young, 1996. "The Economics of Convention," Journal of Economic Perspectives, American Economic Association, vol. 10(2), pages 105-122, Spring.
  7. Fudenberg, Drew & Tirole, Jean, 1991. "Perfect Bayesian equilibrium and sequential equilibrium," Journal of Economic Theory, Elsevier, vol. 53(2), pages 236-260, April.
  8. Martin J. Osborne & Ariel Rubinstein, 1994. "A Course in Game Theory," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262650401, December.
  9. Ariel Rubinstein, 2010. "Perfect Equilibrium in a Bargaining Model," Levine's Working Paper Archive 252, David K. Levine.
  10. Kreps, David M. & Milgrom, Paul & Roberts, John & Wilson, Robert, 1982. "Rational cooperation in the finitely repeated prisoners' dilemma," Journal of Economic Theory, Elsevier, vol. 27(2), pages 245-252, August.
  11. Edward P. Lazear & Sherwin Rosen, 1979. "Rank-Order Tournaments as Optimum Labor Contracts," NBER Working Papers 0401, National Bureau of Economic Research, Inc.
  12. Sanford J. Grossman & Oliver D. Hart, 1980. "Takeover Bids, the Free-Rider Problem, and the Theory of the Corporation," Bell Journal of Economics, The RAND Corporation, vol. 11(1), pages 42-64, Spring.
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Cited by:
  1. Wu, H. & Parlar, M., 2011. "Games with incomplete information: A simplified exposition with inventory management applications," International Journal of Production Economics, Elsevier, vol. 133(2), pages 562-577, October.
  2. Carpio, Lucio Guido Tapia & Pereira, Amaro Jr., 2007. "Economical efficiency of coordinating the generation by subsystems with the capacity of transmission in the Brazilian market of electricity," Energy Economics, Elsevier, vol. 29(3), pages 454-466, May.
  3. Guido Tapia Carpio, Lucio & Olimpio Pereira, Amaro Jr, 2006. "Independent operation by subsystems: Strategic behavior for the Brazilian electricity sector," Energy Policy, Elsevier, vol. 34(17), pages 2964-2976, November.
  4. Jacob K. Goeree & Charles A. Holt, 2001. "Ten Little Treasures of Game Theory and Ten Intuitive Contradictions," American Economic Review, American Economic Association, vol. 91(5), pages 1402-1422, December.
  5. Robert S. Gibbons, 2003. "How organizations behave: towards implications for economics and economic policy," Conference Series ; [Proceedings], Federal Reserve Bank of Boston, vol. 48(Jun).
  6. Duran, Mihael, 2011. "Nachträgliche Reduktion von Vorstandsbezügen: Eine ökonomische Analyse der Herabsetzungsmöglichkeit von Vorstandsbezügen nach dem VorstAG," Tübinger Diskussionsbeiträge 332, University of Tübingen, School of Business and Economics.
  7. Mabiso, Athur & van Rheenen, Teunis & Ferguson, Jenna, 2013. "Organizational partnerships for food Policy research impact: A review of what works:," IFPRI discussion papers 1305, International Food Policy Research Institute (IFPRI).
  8. Alan Collins, 2000. "Surrender Value of Capital Assets: The Economics of Strategic Virginity Loss," Journal of Bioeconomics, Springer, vol. 2(3), pages 193-201, October.
  9. Fine, B., 2000. "Bringing the Social Back into Economies: Progress or Reductionism?," Department of Economics - Working Papers Series 731, The University of Melbourne.

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