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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
Note: LS
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Find related papers by JEL classification:
  • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
  • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design

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  1. Harsanyi, John C., 1994. "Games with Incomplete Information," Nobel Prize in Economics documents 1994-1, Nobel Prize Committee.
  2. Rubinstein, Ariel, 1982. "Perfect Equilibrium in a Bargaining Model," Econometrica, Econometric Society, vol. 50(1), pages 97-109, January.
  3. Lazear, Edward P & Rosen, Sherwin, 1981. "Rank-Order Tournaments as Optimum Labor Contracts," Journal of Political Economy, University of Chicago Press, vol. 89(5), pages 841-64, October.
  4. 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.
  5. 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.
  6. Cramton, Peter C & Tracy, Joseph S, 1992. "Strikes and Holdouts in Wage Bargaining: Theory and Data," American Economic Review, American Economic Association, vol. 82(1), pages 100-121, March.
  7. Spence, A Michael, 1973. "Job Market Signaling," The Quarterly Journal of Economics, MIT Press, vol. 87(3), pages 355-74, August.
  8. Fudenberg, Drew & Tirole, Jean, 1991. "Perfect Bayesian equilibrium and sequential equilibrium," Journal of Economic Theory, Elsevier, vol. 53(2), pages 236-260, April.
  9. Martin J Osborne & Ariel Rubinstein, 2009. "A Course in Game Theory," Levine's Bibliography 814577000000000225, UCLA Department of Economics.
  10. 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.
  11. David M Kreps & Robert Wilson, 2003. "Sequential Equilibria," Levine's Working Paper Archive 618897000000000813, David K. Levine.
  12. H. Peyton Young, 1996. "The Economics of Convention," Journal of Economic Perspectives, American Economic Association, vol. 10(2), pages 105-122, Spring.
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Cited by:

  1. 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.
  2. Duran, Mihael, 2011. "Nachträgliche Reduktion von Vorstandsbezügen: Eine ökonomische Analyse der Herabsetzungsmöglichkeit von Vorstandsbezügen nach dem VorstAG
    [Ex post Reduction of Executive Compensation: An economic r    ," MPRA Paper 33815, University Library of Munich, Germany.
  3. 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.
  4. 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.
  5. 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.
  6. Fine, B., 2000. "Bringing the Social Back into Economies: Progress or Reductionism?," Department of Economics - Working Papers Series 731, The University of Melbourne.
  7. 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.
  8. 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).
  9. 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).

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