Strategies and Games: Theory and Practice / Edition 1

by Prajit K. Dutta

Overview

Game theory has become increasingly popular among undergraduate aswell as business school students. This text is the first to provideboth a complete theoretical treatment of the subject and a variety ofreal-world applications, primarily in economics, but also in business,political science, and the law.

Game theory has become increasingly popular among undergraduate as well as business school students. This text is the first to provide both a complete theoretical treatment of the subject and a variety of real-world applications, primarily in economics, but also in business, political science, and the law. Strategies and Games grew out of Prajit Dutta's experience teaching a course in game theory over the last six years at Columbia University.The book is divided into three parts: Strategic Form Games and Their Applications, Extensive Form Games and Their Applications, and Asymmetric Information Games and Their Applications. The theoretical topics include dominance solutions, Nash equilibrium, backward induction, subgame perfect equilibrium, repeated games, dynamic games, Bayes-Nash equilibrium, mechanism design, auction theory, and signaling. An appendix presents a thorough discussion of single-agent decision theory, as well as the optimization and probability theory required for the course.Every chapter that introduces a new theoretical concept opens with examples and ends with a case study. Case studies include Global Warming and the Internet, Poison Pills, Treasury Bill Auctions, and Final Jeopardy. Each part of the book also contains several chapter-length applications including Bankruptcy Law, the NASDAQ market, OPEC, and the Commons problem. This is also the first text to provide a detailed analysis of dynamic strategic interaction.

Product Details

ISBN-13:	9780262041690
Publisher:	MIT Press
Publication date:	02/16/1999
Series:	The MIT Press
Edition description:	New Edition
Pages:	506
Product dimensions:	8.25(w) x 9.25(h) x 1.13(d)
Age Range:	18 Years

About the Author

Prajit Dutta is Professor in the Department of Economics at Columbia University.

Table of Contents

Preface
A Reader's Guide
ONE Introduction
1 A First Look at the Applications
1.1 Games That We Play
1.2 Background
1.3 EXamples
Summary
EXercises
2 A First Look at the Theory
2.1 Rules of the Game: Background
2.2 Who, What, When: The EXtensive Form
2.3 Who, What, When: The Normal (or Strategic) Form
2.4 How Much: Von NeumanMorgenstern Utility Function
2.5 Representation of the EXamples
Summary
EXercises
TWO Strategic Form Games: Theory and
Practice
3 Strategic Form Games and Dominant Strategies
3.1 Strategic Form Games
3.2 CASE STUDY The Strategic Form of Art Auctions
3.3 Dominant Strategy Solution
3.4 CASE STUDY AGAIN A Dominant Strategy at the Auction
Summary
EXercises
4 Dominance Solvability
4.1 The Idea
4.2 CASE STUDY Electing the United Nations Secretary General
4.3 A More Formal Definition
4.4 A Discussion
Summary
EXercises
5 Nash Equilibrium
5.1 The Concept
5.2 EXamples
5.3 CASE STUDY Nash Equilibrium in the Animal Kingdom
5.4 Relation between the Solution Concepts
Summary
EXercises
6 An Application: Cournot Duopoly
6.1 Background
6.2 The Basic Model
6.3 Cournot Nash Equilibrium
6.4 Cartel Solution
6.5 CASE STUDY Today's OPEC
6.6 Variants on the Main Theme I: A Graphical Analysis
6.7 Variants on the Main Theme II: Stackelberg Model
6.8 Variants on the Main Theme III: Generalization
Summary
EXercises
7 An Application: The Common Problem
7.1 Background: What Is the Commons?
7.2 A Simple Model
7.3 Social Optimality
7.4 The Problem Worsens in a Large Population
7.5 CASE STUDY Buffalo, Global Warming, and theInternet
7.6 Averting a Tragedy
Summary
EXercises
8 MiXed Strategies
8.1 Definition and EXamples
8.2 An Implication
8.3 MiXed Strategies Can Dominate Some Pure Strategies
8.4 MiXed Strategies Are Good for Bluffing
8.5 MiXed Strategies and Nash Equilibrium
8.6 CASE STUDY Random Drug Testing
Summary
EXercises
9 Two Applications: Natural Monopoly and Bankruptcy
Law
9.1 Chicken, Symmetric Games, and Symmetric Equilibria
9.2 Natural Monopoly
9.3 Bankruptcy Law
Summary
EXercises
10 ZeroSum Games
10.1 Definition and EXamples
10.2 Playing Safe: MaXmin
10.3 Playing Sound: MinmaX
10.4 Playing Nash: Playing Both Safe and Sound
Summary
EXercises
THREE EXtensive Form Games: Theory and
Applications
11 EXtensive Form Games and Backward Induction
11.1 The EXtensive Form
11.2 Perfect Information Games: Definition and EXamples
11.3 Backward Induction: EXamples
11.4 Backward Induction: A General Result
11.5 Connection with IEDS in the Strategic Form
11.6 CASE STUDY Poison Pills and Other Takeover Deterrents
Summary
EXercises
12 An Application: Research and Development
12.1 Background: R&D, Patents, and Oligopolies
12.2 A Model of R&D
12.3 Backward Induction; Analysis of the Model
12.4 Some Remarks
Summary
EXercises
13 Subgame Perfect Equilibrium
13.1 A Motivating EXample
13.2 Subgames and Strategies within Subgames
13.3 Subgame Perfect Equilibrium
13.4 Two More EXamples
13.5 Some Remarks
13.6 CASE STUDY Peace in the World War I Trenches
Summary
EXercises
14 Finitely Repeated Games
14.1 EXamples and Economic Applications
14.2 Finitely Repeated Games
14.3 CASE STUDY Treasury Bill Auctions
Summary
EXercises
15 Infinitely Repeated Games
15.1 Detour through Discounting
15.2 Analysis of EXample 3: Trigger Strategies and Good Behavior
15.3 The Folk Theorem
15.4 Repeated Games with Imperfect Detection
Summary
EXercises
16 An Application: Competition and Collusion in the
NASDAQ Stock Market
16.1 The Background
16.2 The Analysis
16.3 The BrokerDealer Relationship
16.4 The Epilogue
Summary
EXercises
17 An Application: OPEC
17.1 Oil: A Historical Review
17.2 A Simple Model of the Oil Market
17.3 Oil Prices and the Role of OPEC
17.4 Repeated Games with Demand Uncertainty
17.5 Unobserved Quota Violations
17.6 Some Further Comments
Summary
EXercises
18 Dynamic Games with an Application to the Commons
Problem
18.1 Dynamic Games: A Prologue
18.2 The Commons Problem: A Model
18.3 Sustainable Development and Social Optimum
18.4 Achievable Development and Game Equilibrium
18.5 Dynamic Games: An Epilogue
Summary
EXercises
FOUR Asymmetric Information Games: Theory and
Applications
19 Moral Hazard and Incentives Theory
19.1 Moral Hazard: EXamples and a Definition
19.2 A PrincipalAgent Model
19.3 The Optimal Incentive Scheme
19.4 Some General Conclusions
19.5 CASE STUDY Compensating Primary Care Physicians in an HMO
Summary
EXercises
20 Games with Incomplete Information
20.1 Some EXamples
20.2 A Complete Analysis of EXample 4
20.3 More General Considerations
20.4 DominanceBased Solution Concepts
20.5 CASE STUDY Final Jeopardy
Summary
EXercises
21 An Application: Incomplete Information in a Cournot
Duopoly
21.1 A Model and Its Equilibrium
21.2 The Complete Information Solution
21.3 Revealing Costs to a Rival
21.4 TwoSided Incompleteness of Information
21.5 Generalizations and EXtensions
Summary
EXercises
22 Mechanism Design, the Revelation Principle, and Sales
to an Unknown Buyer
22.1 Mechanism Design: The Economic ConteXt
22.2 A Simple EXample: Selling to a Buyer with an Unknown
Valuation
22.3 Mechanism Design and the Revelation Principle
22.4 A More General EXample: Selling Variable Amounts
Summary
EXercises
23 An Application: Auctions
23.1 Background and EXamples
23.2 SecondPrice Auctions
23.3 FirstPrice Auctions
23.4 Optimal Auctions
23.5 Final Remarks
Summary
EXercises
24 Signaling Games and the Lemons Problem
24.1 Motivation and Two EXamples
24.2 A Definition, an Equilibrium Concept, and EXamples
24.3 Signaling Product Quality
24.4 CASE STUDY Used Cars: A Market for Lemons?
Concluding Remarks
Summary
EXercises
FIVE Foundations
25 Calculus and Optimization
25.1 A Calculus Primer
25.2 An Optimization Theory Primer
Summary
EXercises
26 Probability and EXpectation
26.1 Probability
26.2 Random Variables and EXpectation
Summary
EXercises
27 Utility and EXpected Utility
27.1 Decision Making under Certainty
27.2 Decision Making under Uncertainty
27.3 Risk Aversion
Summary
EXercises
28 EXistence of Nash Equilibria
28.1 Definition and EXamples
28.2 Mathematical Background: FiXed Points
28.3 EXistence of Nash Equilibria: Results and Intuition
Summary
EXercises
IndeX

What People are Saying About This

Endorsement

Professor Dutta strikes an excellent balance between formal development of the fundamental ideas in game theory and interesting economic applications. This book introduces advanced undergraduates and beginning graduate students to the exciting and elegant world of game theory.

—Thomas A. Gresik, Department of Economics, The Pennsylvania State University

From the Publisher

There is a profusion of game theory texts now available. Prajit Dutta's book is clearly one of the best. It will be of particular interest to undergraduates with a background in economics, who seek a deeper understanding of how strategy plays a role in competition, particularly dynamic competition.

—Eric Maskin, Department of Economics, Harvard University

Professor Dutta strikes an excellent balance between formal development of the fundamental ideas in game theory and interesting economic applications. This book introduces advanced undergraduates and beginning graduate students to the exciting and elegant world of game theory.

—Thomas A. Gresik, Department of Economics, The Pennsylvania State University

Eric Maskin

There is a profusion of game theory texts now available. Prajit Dutta's book is clearly one of the best. It will be of particular interest to undergraduates with a background in economics, who seek a deeper understanding of how strategy plays a role in competition, particularly dynamic competition.

Thomas A. Gresik

Professor Dutta strikes an excellent balance between formal development of the fundamental ideas in game theory and interesting economic applications. This book introduces advanced undergraduates and beginning graduate students to the exciting and elegant world of game theory.