Game Theory for Applied Economists

Game Theory for Applied Economists

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by Robert Gibbons
     
 

This book introduces one of the most powerful tools of modern economics to a wide audience: those who will later construct or consume game-theoretic models. Robert Gibbons addresses scholars in applied fields within economics who want a serious and thorough discussion of game theory but who may have found other works overly abstract. Gibbons emphasizes the

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Overview

This book introduces one of the most powerful tools of modern economics to a wide audience: those who will later construct or consume game-theoretic models. Robert Gibbons addresses scholars in applied fields within economics who want a serious and thorough discussion of game theory but who may have found other works overly abstract. Gibbons emphasizes the economic applications of the theory at least as much as the pure theory itself; formal arguments about abstract games play a minor role. The applications illustrate the process of model building--of translating an informal description of a multi-person decision situation into a formal game-theoretic problem to be analyzed. Also, the variety of applications shows that similar issues arise in different areas of economics, and that the same game-theoretic tools can be applied in each setting. In order to emphasize the broad potential scope of the theory, conventional applications from industrial organization have been largely replaced by applications from labor, macro, and other applied fields in economics. The book covers four classes of games, and four corresponding notions of equilibrium: static games of complete information and Nash equilibrium, dynamic games of complete information and subgame-perfect Nash equilibrium, static games of incomplete information and Bayesian Nash equilibrium, and dynamic games of incomplete information and perfect Bayesian equilibrium.

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Product Details

ISBN-13:
9780691043081
Publisher:
Princeton University Press
Publication date:
08/10/1992
Pages:
288
Product dimensions:
6.40(w) x 9.55(h) x 0.97(d)

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Table of Contents

1Static Games of Complete Information1
1.1Basic Theory: Narmal-Form Games and Nash Equilibrium2
1.1.ANormal-Form Representation of Games2
1.1.BIterated Elimination of Strictly Dominated Strategies4
1.1.CMotivation and Definition of Nash Equilibriuin8
1.2Applications14
1.2.ACournot Model of Duopoly14
1.2.BBertrand Model of Duopoly21
1.2.CFinal-Offer Arbitration22
1.2.DThe Problem of the Commons27
1.3Advanced Theory: Mixed Strategies and Existence of Equilibriutn29
1.3.AMixed Strategies29
1.3.BExistence of Nash Equilibrium33
2Dynamic Games of Complete Information55
2.1Dynamic Games of Complete and Perfect Information57
2.1.ATheory: Backwards Induction57
2.1.BStackelberg Model of Duopoly61
2.1.CWages and Employment in a Unionized Firm64
2.1.DSequential Bargaining68
2.2Two-Stage Games of Complete but Imperfect Information71
2.2.ATheory: Subgame Perfection71
2.2.BBank Runs73
2.2.CTariffs and Imperfect International Competition75
2.2.DTournaments79
2.3Repeated Games82
2.3.ATheory: Two-Stage Repeated Games82
2.3.BTheory: Infinitely Repeated Games88
2.3.CCollusion between Cournot Duopolists102
2.3.DEfficiency Wages107
2.3.ETime-Consistent Monetary Policy112
2.4Dynamic Games of Complete but Imperfect Information115
2.4.AExtensive-Form Representation of Games115
2.4.BSubgame-Perfect Nash Equilibriuin122
3Static Games of Incomplete Information143
3.1Theory: Static Bayesian Ganies and Bayesian Nash Equilibrium144
3.1.AAn Example: Cournot Competition under Asymmetric Information144
3.1.BNormal-Form Representation of Static Bayesian Games146
3.1.CDefinition of Bayesian Nash Equilibrium149
3.2Applications152
3.2.AMixed Strategies Revisited152
3.2.BAn Auction155
3.2.CA Double Auction158
3.3The Revelation Principle164
4Dynamic Games of Incomplete Information173
4.1Introduction to Perfect Bayesian Equilibrium175
4.2Signaling Games183
4.2.APerfect Bayesian Equilibrium in Signaling Games183
4.2.BJob-Market Signaling190
4.2.CCorporate Investment and Capital Structure205
4.2.DMonetary Policy208
4.3Other Applications of Perfect Bayesian Equilibrium210
4.3.ACheap-Talk Games210
4.3.BSequential Bargaining under Asymmetric Information218
4.3.CReputation in the Finitely Repeated Prisoners' Dilemnia224
4.4Refinements of Perfect Bayesian Equilibrium233
Index257

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