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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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  • Robert Gibbons, 1997. "An Introduction to Applicable Game Theory," NBER Technical Working Papers 0199, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberte:0199
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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," Tübinger Diskussionsbeiträge 332, University of Tübingen, School of Business and Economics.
    3. Ramzi Mabsout, 2018. "The Backward Induction Controversy as a Metaphorical Problem," Economic Thought, World Economics Association, vol. 7(1), pages 24-49, March.
    4. Dmytro Bogatov, 2018. "Analysis of a Dynamic Voluntary Contribution Mechanism Public Good Game," Papers 1807.04621, arXiv.org.
    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. 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.
    7. Fine, B., 2000. "Bringing the Social Back into Economies: Progress or Reductionism?," Department of Economics - Working Papers Series 731, The University of Melbourne.
    8. Orley Ashenfelter & Gordon B. Dahl, 2003. "Strategic Bargaining Behavior, Self-Serving Biases, and the Role of Expert Agents An Empirical Study of Final-Offer Arbitration," Working Papers 857, Princeton University, Department of Economics, Industrial Relations Section..
    9. Naomi R. Lamoreaux & Daniel Raff & Peter Temin, 1999. "Introduction to "Learning by Doing in Markets, Firms, and Countries"," NBER Chapters, in: Learning by Doing in Markets, Firms, and Countries, pages 1-18, National Bureau of Economic Research, Inc.
    10. Alcocer, Christian & Ortegón, Julian & Roa, Alejandro, 2019. "Uncertainty under hyperbolic discounting: the cost of untying your hands," Journal of Economics, Finance and Administrative Science, Universidad ESAN, vol. 24(48), pages 176-193.
    11. 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.
    12. Diwakar Gupta & Mili Mehrotra, 2015. "Bundled Payments For Healthcare Services: Proposer Selection and Information Sharing," Operations Research, INFORMS, vol. 63(4), pages 772-788, August.
    13. Songsermsawas, Tisorn & Baylis, Kathy & Chhatre, Ashwini & Michelson, Hope & Prasanna, Satya, 2015. "Friends or traders? Do social networks explain the use of market mechanisms by farmers in India," 2015 Conference, August 9-14, 2015, Milan, Italy 211206, International Association of Agricultural Economists.
    14. Vargas, Carlos Eduardo, 2014. "Inversión extranjera y compra masiva de tierras
      [Foreign investment and massive land purchase]      ," MPRA Paper 67951, University Library of Munich, Germany.
    15. Wen-Long Jin, 2015. "Advances in Dynamic Traffic Assgmnt: TAC," Networks and Spatial Economics, Springer, vol. 15(3), pages 617-634, September.
    16. 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.
    17. Orley Ashenfelter & Gordon Dahl, 2003. "Strategic Bargaining Behavior, Self-Serving Biases, and the Role of Expert Agents An Empirical Study of Final-Offer Arbitration," Working Papers 857, Princeton University, Department of Economics, Industrial Relations Section..
    18. Robert S. Gibbons, 2003. "How organizations behave: towards implications for economics and economic policy," Conference Series ; [Proceedings], Federal Reserve Bank of Boston, issue jun.
    19. Aurora Trif & Malcolm Brady, 2013. "Implications of game theory for theoretical underpinning of cooperative relations in workplace partnership," Industrial Relations Journal, Wiley Blackwell, vol. 44(3), pages 258-275, May.
    20. Askeland, Tore & Flage, Roger & Aven, Terje, 2017. "Moving beyond probabilities – Strength of knowledge characterisations applied to security," Reliability Engineering and System Safety, Elsevier, vol. 159(C), pages 196-205.
    21. 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).

    More about this item

    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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