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Can game theory be saved?

Author

Listed:
  • 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.

Suggested Citation

  • Flavio Menezes & John Quiggin, 2007. "Can game theory be saved?," Risk & Uncertainty Working Papers WP4R07, Risk and Sustainable Management Group, University of Queensland.
  • Handle: RePEc:rsm:riskun:r07_4
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    File URL: http://www.uq.edu.au/rsmg/WP/WPR07_4.pdf
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    References listed on IDEAS

    as
    1. Richard Cornes & Roger Hartley, 2007. "Aggregative Public Good Games," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 9(2), pages 201-219, April.
    2. Flavio Menezes & John Quiggin, 2007. "Games without Rules," Theory and Decision, Springer, vol. 63(4), pages 315-347, December.
    3. Green, Richard J, 1996. "Increasing Competition in the British Electricity Spot Market," Journal of Industrial Economics, Wiley Blackwell, vol. 44(2), pages 205-216, June.
    4. Grant, Simon & Quiggin, John, 1994. "Nash equilibrium with mark-up-pricing oligopolists," Economics Letters, Elsevier, vol. 45(2), pages 245-251, June.
    5. Klemperer, Paul D & Meyer, Margaret A, 1989. "Supply Function Equilibria in Oligopoly under Uncertainty," Econometrica, Econometric Society, vol. 57(6), pages 1243-1277, November.
    6. 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.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    game theory; equilibrium;

    JEL classification:

    • C7 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory

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