Game Theory and Economics

Game Theory and Economics

by Christian Montet, Daniel Serra
     
 

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ISBN-10: 0333618475

ISBN-13: 9780333618479

Pub. Date: 01/07/2004

Publisher: Palgrave Macmillan

In recent times game theory has been applied with success to a range of issues in economics, social science and business. This new core textbook is a thorough and challenging introduction to game theory and its applications in the various fields of economics and related disciplines. It presents a comprehensive coverage of standard as well as new developments in the

Overview

In recent times game theory has been applied with success to a range of issues in economics, social science and business. This new core textbook is a thorough and challenging introduction to game theory and its applications in the various fields of economics and related disciplines. It presents a comprehensive coverage of standard as well as new developments in the field, including cooperative games, evolutionary game theory and experimental games. Game Theory and Economics is an ideal course companion for students studying game theory at either undergraduate or postgraduate level.

Product Details

ISBN-13:
9780333618479
Publisher:
Palgrave Macmillan
Publication date:
01/07/2004
Edition description:
REV
Pages:
520
Product dimensions:
6.00(w) x 9.00(h) x 1.14(d)

Table of Contents

List of Figuresx
Acknowledgementsxv
Introductionxvii
I.1Why the need for a new textbook?xvii
I.2Five distinctive features of the bookxix
I.3Organization of the book and alternative course designxx
I.4Advice to the readerxxiii
Notation and symbolsxxv
1Preliminaries1
1.1Introduction to game theory and outline of the book1
1.1.1Game theory: what it is and where it comes from?1
1.1.2Non-cooperative and cooperative games: the two classical frameworks2
1.1.3Game theory and decision theory: what is the difference?4
1.1.4Rational behaviour, information and equilibrium4
1.1.5'Rationalistic' and 'evolutive' interpretations of an equilibrium6
1.1.6Game theory and empiricism9
1.2Detailed description of the book's content10
1.3Formal representation of games13
1.3.1Extensive-form games13
1.3.2Strategic-form games17
1.3.3Coalitional-form games22
Bibliography26
2Optimal Decentralized Decisions28
2.1Dominant strategy equilibrium29
2.1.1Definition29
2.1.2Existence and efficiency31
2.2Iterated dominance and backward induction34
2.2.1Iterated dominance34
2.2.2Backward induction37
2.3Safety First39
2.3.1Security strategies39
2.3.2Optimal security strategies in strictly competitive games42
2.4Applications45
2.4.1Voting game45
2.4.2Implementation theory and public decision making49
Bibliography59
3Non-Cooperative Games with Complete and Perfect Information62
3.1Nash equilibrium: theory and early applications63
3.1.1Definition and existence63
3.1.2Two classical applications in industrial organization: Cournot and Bertrand duopoly models68
3.1.3Justification and selection of a Nash equilibrium73
3.1.4Failures of NE concept: non-existence, multiplicity, inefficiency78
3.2Extensions: randomization and correlation80
3.2.1Mixed strategy equilibrium80
3.2.2Correlated equilibrium86
3.3Repeated games91
3.3.1Definition91
3.3.2The folk theorem94
3.4Sub-game perfection: refinement 197
3.4.1Sub-game perfection and backward induction97
3.4.2Stackelberg equilibrium: a classical application in industrial organization100
3.4.3Sub-game perfection in general games103
3.5Applications109
3.5.1Sequential games and strategic commitment109
3.5.2Sequential games and hidden actions: moral hazard120
3.5.3Repeated games and credible threats or promises127
AppendixBasic topological concepts: convexity, correspondences and fixed point theorems135
Bibliography137
4Non-Cooperative Games with Imperfect or Incomplete Information141
4.1Games with incomplete information: Bayesian equilibrium142
4.1.1The axiomatic framework of games with complete information142
4.1.2Rationalizable strategies144
4.1.3The Bayesian game and Nash equilibrium146
4.1.4A classical application: auctions151
4.2Perfectness and sequentiality: refinement 2155
4.2.1Perfectness156
4.2.2Sequentiality161
4.3Forward induction: refinement 3170
4.3.1Forward induction and backward induction171
4.3.2Formalizations of forward induction in signalling games175
4.3.3Stable sets of equilibria185
4.4Applications188
4.4.1Repeated games with incomplete information: reputation effects188
4.4.2Signalling games192
Bibliography203
5Bargaining: from Non-Cooperative to Cooperative Games206
5.1Strategic games of bargaining207
5.1.1Indeterminacy or extreme Nash equilibria in simple two-person bargaining games with complete information208
5.1.2The Rubinstein model: alternating offers in finite and infinite horizon bargaining games211
5.1.3'Outside option' games218
5.1.4Non-cooperative theories of bargaining under incomplete information222
5.2Axiomatic models of bargaining and Nash program226
5.2.1The Nash bargaining solution226
5.2.2Other axiomatic bargaining solutions236
5.2.3The Nash program: the relationships between the strategic and the axiomatic approaches239
5.3Applications242
5.2.4Bilateral monopoly242
5.2.5Firm-union bargaining over wage and employment244
Bibliography246
6Coalitions: Cooperative and Non-Cooperative Games248
6.1Introduction to coalition games249
6.1.1General properties of cooperative games249
6.1.2Interpretation and classification of solution concepts in cooperative games255
6.1.3Coalition formation: cooperative or non-cooperative framework258
6.2The domination approach: the core and related solution concepts260
6.2.1The core260
6.2.2Like-core solution concepts269
6.3The valuation approach: the Shapley value and extensions276
6.3.1The Shapley value276
6.3.2Relationships between the Shapley Value and other solution concepts280
6.3.3Extensions284
6.4Endogenous coalition structures and formation of coalitions287
6.4.1Endogenous coalition structures: generalities287
6.4.2Non-cooperative games of coalition formation with externalities296
6.5Applications304
6.5.1Cost sharing games304
6.5.2Environmental coalitions311
AppendixLinear programming323
Bibliography323
7Evolutionary Games and Learning329
7.1Replicator dynamics and evolutionary stable strategies: the basic biological concepts330
7.1.1The Replicator dynamics330
7.1.2Evolutionary stable strategies337
7.1.3Neutral stability, evolutionary stable sets and robustness against equilibrium entrants340
7.1.4Asymmetrical evolutionary games343
7.2Extensions and generalizations to economics: evolution, rationality and efficiency347
7.2.1Connection between Replicator dynamics, evolutionary stable strategy and other equilibrium concepts347
7.2.2Evolution and dominance351
7.2.3Evolutionary stability and efficiency353
7.3Learning models356
7.3.1Routine learning357
7.3.2Learning by way of imitation358
7.3.3Belief learning359
7.4Applications363
7.4.1International trade and the internal organization of firms363
7.4.2An evolutionary version of the 'chain-store' game370
Appendix 1Elements of a dynamic system379
Appendix 2The model of Friedman and Fung (1996)381
Bibliography382
8Experimental Games385
8.1Some methodological remarks and first applications386
8.1.1History and methodology386
8.1.2First applications: strictly competitive games388
8.2Cooperation391
8.2.1Cooperation: altruism or strategic reputation building behaviour?392
8.2.2Cooperation and backward induction in sequential games398
8.3Coordination401
8.3.1Classical coordination games403
8.3.2Factors increasing coordination407
8.4Bargaining411
8.4.1The ultimatum game411
8.4.2Some other bargaining games421
8.4.3Coalition games425
8.5Learning and evolution428
8.5.1Questions explored in experimental evolutionary games428
8.5.2Examples of experimental evolutionary game430
8.5.3Learning in games435
8.6From experimental evidences to some new game theoretic modelling principles439
8.6.1Players' abilities: towards new bounded rationality principles440
8.6.2Players' motivations: the new 'social utility' models444
Bibliography460
Name Index469
Subject Index474

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