Strategy: An Introduction to Game Theory / Edition 3

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The perfect balance of readability and formalism.
Joel Watson has refined his successful text to make it even more student-friendly. A number of sections have been added, and numerous chapters have been substantially revised. Dozens of new exercises have been added, along with solutions to selected exercises. Chapters are short and focused, with just the right amount of mathematical content and end-of-chapter exercises. New passages walk students through tricky topics.

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Product Details

  • ISBN-13: 9780393918380
  • Publisher: Norton, W. W. & Company, Inc.
  • Publication date: 5/15/2013
  • Edition description: Third Edition
  • Edition number: 3
  • Pages: 512
  • Sales rank: 234,306
  • Product dimensions: 6.80 (w) x 9.10 (h) x 1.30 (d)

Meet the Author

Joel Watson is Professor of Economics at the University of California, San Diego. He received his BA from UCSD and his PhD from Stanford. Watson is one of the top game theorists of his generation, and his work has been published in a variety of leading journals, including The American Economic Review, Econometrica, Journal of Economic Theory, Quarterly Journal of Economics, and Games and Economic Behavior.

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Table of Contents

Preface xiii
1 Introduction 1
Noncooperative Game Theory 2
Contract and Cooperative Game Theory 4
The Meaning of "Game" 5
Part I Representing Games 7
2 The Extensive Form 9
Other Examples and Conventions 15
Exercises 19
3 Strategies 23
Exercises 27
4 The Normal Form 29
Classic Normal-Form Games 30
Interpretation of the Normal Form 32
Exercises 34
5 Beliefs, Mixed Strategies, and Expected Utility 38
Exercises 40
Part II Analyzing Behavior in Static Settings 43
6 Dominance and Best Response 45
Dominance 45
The First Strategic Tension and the Prisoners' Dilemma 47
The Concept of Efficiency 49
Best Response 50
Dominance and Best Response Compared 52
Exercises 55
7 Rationalizability and Iterated Dominance 58
The Second Strategic Tension 61
Exercises 63
8 Location and Partnership 67
A Location Game 67
A Partnership Game: Strategic Complementarities 70
Exercises 76
9 Congruous Strategies and Nash Equilibrium 79
Congruous Sets 81
Nash Equilibrium 82
Equilibrium of the Partnership Game 86
Coordination and Social Welfare 87
The Third Strategic Tension 89
Aside: Behavioral Game Theory 90
Exercises 92
10 Oligopoly, Tariffs, and Crime and Punishment 95
Cournot Duopoly Model 95
Bertrand Duopoly Model 97
Tariff Setting by Two Countries 98
A Model of Crime and Police 99
Exercises 100
11 Mixed-Strategy Nash Equilibrium 104
Exercises 106
12 Strictly Competitive Games and Security Strategies 111
Exercises 113
13 Contract, Law, and Enforcement in Static Settings 115
Complete Contracting in Discretionary Environments 119
Contracting with Court-Imposed Breach Remedies 122
Exercises 127
Part III Analyzing Behavior in Dynamic Settings 131
14 Details of the Extensive Form 133
Exercises 136
15 Backward Induction and Subgame Perfection 137
Sequential Rationality and Backward Induction 138
Subgame Perfection 141
Exercises 145
16 Topics in Industrial Organization 150
Advertising and Competition 150
A Model of Limit Capacity 152
Dynamic Monopoly 155
Price Guarantees as a Commitment to High Prices 159
Exercises 161
17 Parlor Games 165
Exercises 167
18 Bargaining Problems 170
Bargaining: Value Creation and Division 170
An Abstract Representation of Bargaining Problems 172
An Example 174
The Standard Bargaining Solution 176
Exercises 178
19 Analysis of Simple Bargaining Games 180
Ultimatum Games: Power to the Proposer 180
Two-Period, Alternating-Offer Games: Power to the Patient 182
Infinite-Period, Alternating-Offer Game 186
Exercises 187
20 Games with Joint Decisions; Negotiation Equilibrium 191
Joint Decisions 192
Negotiation Equilibrium 194
Example: Contracting for High-Powered Incentives 195
Exercises 197
21 Investment, Hold Up, and Ownership 201
Hold Up Example 201
Asset Ownership 203
Exercises 205
22 Repeated Games and Reputation 210
A Two-Period Repeated Game 211
An Infinitely Repeated Game 216
The Equilibrium Payoff Set with Low Discounting 219
Exercises 223
23 Collusion, Trade Agreements, and Goodwill 227
Dynamic Oligopoly and Collusion 227
Enforcing International Trade Agreements 229
Goodwill and Trading a Reputation 230
Exercises 233
Part IV Information 237
24 Random Events and Incomplete Information 239
Exercises 243
25 Risk and Incentives in Contracting 245
Risk Aversion 245
A Principal-Agent Game 249
Exercises 254
26 Bayesian Nash Equilibrium and Rationalizability 256
Exercises 258
27 Trade with Incomplete Information 262
Markets and Lemons 262
Auctions 264
Exercises 269
28 Perfect Bayesian Equilibrium 272
Conditional Beliefs about Types 273
Sequential Rationality 274
Consistency of Beliefs 275
Equilibrium Definition 276
Exercises 278
29 Job-Market Signaling and Reputation 282
Jobs and School 282
Reputation and Incomplete Information 285
Exercises 288
Appendices 293
A Review of Mathematics 295
Sets 295
Functions and Calculus 297
Probability 301
B The Mathematics of Rationalizability 307
Dominance, Best Response, and Correlated Conjectures 307
Rationalizability Construction 311
Exercises 313
Index 315
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