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Can game theory be saved?

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  • Flavio Menezes

    ()
    (Australian National University)

  • John Quiggin

    ()
    (Risk & Sustainable Management Group, School of Economics, University of Queensland)

Abstract

Game-theoretic analysis is a well-established part of the toolkit of economic analysis. In crucial respects, however, game theory has failed to deliver on its original promise of generating sharp predictions of behavior in situations where neoclassical microeconomics has little to say. Experience has shown that in most situations, it is possible to tell a game-theoretic story to fit almost any possible outcome. We argue that, in general, any individually rational outcome of an economic interaction may be supported as the Nash equilibrium of an appropriately chosen game, and that a wide range of these outcomes will have an economically reasonable interpretation. We consider possible attempts to salvage the original objectives of the game-theoretic research program. In at least some cases, information on institutional structures and observations of interactions between agents can be used to limit the set of strategies that may be considered reasonable.

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Bibliographic Info

Paper provided by Risk and Sustainable Management Group, University of Queensland in its series Risk & Uncertainty Working Papers with number WP4R07.

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Date of creation: Feb 2007
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Handle: RePEc:rsm:riskun:r07_4

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Keywords: game theory; equilibrium;

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  1. Green, Richard J, 1996. "Increasing Competition in the British Electricity Spot Market," Journal of Industrial Economics, Wiley Blackwell, vol. 44(2), pages 205-16, June.
  2. Klemperer, Paul D & Meyer, Margaret A, 1989. "Supply Function Equilibria in Oligopoly under Uncertainty," Econometrica, Econometric Society, Econometric Society, vol. 57(6), pages 1243-77, November.
  3. Flavio Menezes & John Quiggin, 2007. "Games without Rules," Theory and Decision, Springer, Springer, vol. 63(4), pages 315-347, December.
  4. David M. Kreps & Jose A. Scheinkman, 1983. "Quantity Precommitment and Bertrand Competition Yield Cournot Outcomes," Bell Journal of Economics, The RAND Corporation, vol. 14(2), pages 326-337, Autumn.
  5. Grant, Simon & Quiggin, John, 1994. "Nash equilibrium with mark-up-pricing oligopolists," Economics Letters, Elsevier, vol. 45(2), pages 245-251, June.
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