K kkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkk
,C ONTENTS
I G ENERAL MATERIALS 7
II CHAPTER-SPECIFIC M ATERIALS 12
1 INTRODUCTION 13
2 T HE EXTENSIVE FORM 15
3 S TRATEGIES AND THE NORMAL FORM 18
4 B ELIEFS, MIXED STRATEGIES,
A N D EXPECTED PAYOFFS 21
5 GEN ERAL A SSUMPTIONS AND M ETHODOLOGY 23
6 DOMINANCE A ND B EST R ESPONSE 24
7 R ATIONALIZABILITY AND IT ERATED DOMINANCE 27
8 L OCATION, P ARTNERSHIP, A ND S OCIAL U NREST 29
9 N ASH EQUILIBRIUM 32
1 0 O LIGOPOLY, TARIFFS, CRIME, AND VOTING 34
1 1 M IXED-STRATEGY NASH EQUILIBRIUM 35
1 2 S TRICTLY COMPETITIVE
GAMES AND SECURITY 37
S TRATEGIES
1 3 C ONTRACT, LAW, AND
E NFORCEMENT IN STATIC SETTINGS 38
14 DETAILS OF THE EXTENSIVE FORM 41
1 5 S EQUENTIAL RATIONALITY
A N D SUBGAME 43
P ERFECTION
2
,1 Introduction
This Chapter Introduces The Concept Of A Game And Encourages The Reader To Begin
Thinking About The Formal Analysis Of Strategic Situations. The Chapter Contains A
Short History Of Game Theory, Followed By A Description Of “Noncooperative Theory” (Which
The Book Emphasizes), A Discussion Of The Notion Of Contract And The Related Use Of
“Cooperative Theory,” And Comments On The Science And Art Of Applied Theoretical Work.
The Chapter Explains That The Word “Game” Should Be Associated With Any Well-
Defined Strategic Situation, Not Just Adversarial Contests. Finally, The Format And Style Of
The Book Are Described.
L ECTURE NOTES
Th e N on-Administrative S egment O f A First Lecture In G ame Theory M ay Run As
Follows.
• Definition Of A Strategic Situation.
Examples (Have Students Suggest Some): Chess, Poker, And Other Parlor Games;
Tennis, Football, And Other Sports; Firm Competition, International Trade, Inter-
National Relations, Firm+Employee Relations, And Other Standard Economic Exam-
Ples; Biological Competition; Elections; And So On.
Competition And Cooperation Are Both Strategic Topics. Game Theory Is A General
Methodology For Studying Strategic Settings (Which May Have Elements Of Both
Competition And Cooperation).
• The Elements Of A Formal Game Representation.
A Few Simple Examples Of The Extensive-Form Representation (Point Out The Basic
Components).
E XAMPLES AND EXPERIMENTS
1. Clap Game. Ask The Students To Stand, And Then, If They Comply, Ask Them To
Clap. (This Is A Silly Game.) Show Them How To Diagram The Strategic Situation
As An Extensive-Form Tree. The Game Starts With Your Decision About Whether To
Ask Them To Stand. If You Ask Them To Stand, Then They (Modeled As One Player)
Have To Choose Between Standing And Staying In Their Seats. If They Stand, Then You
Decide Between Saying Nothing And Asking Them To Clap. If You Ask Them To Clap,
Then They Have To Decide Whether To Clap. Write The Outcomes At Terminal Nodes In
Descriptive Terms Such As “Professor Happy, Students Confused.” Then Show How
These Outcomes Can Be Converted Into Payoff Numbers.
3
, 13
4
,C ONTENTS
I G ENERAL MATERIALS 7
II CHAPTER-SPECIFIC M ATERIALS 12
1 INTRODUCTION 13
2 T HE EXTENSIVE FORM 15
3 S TRATEGIES AND THE NORMAL FORM 18
4 B ELIEFS, MIXED STRATEGIES,
A N D EXPECTED PAYOFFS 21
5 GEN ERAL A SSUMPTIONS AND M ETHODOLOGY 23
6 DOMINANCE A ND B EST R ESPONSE 24
7 R ATIONALIZABILITY AND IT ERATED DOMINANCE 27
8 L OCATION, P ARTNERSHIP, A ND S OCIAL U NREST 29
9 N ASH EQUILIBRIUM 32
1 0 O LIGOPOLY, TARIFFS, CRIME, AND VOTING 34
1 1 M IXED-STRATEGY NASH EQUILIBRIUM 35
1 2 S TRICTLY COMPETITIVE
GAMES AND SECURITY 37
S TRATEGIES
1 3 C ONTRACT, LAW, AND
E NFORCEMENT IN STATIC SETTINGS 38
14 DETAILS OF THE EXTENSIVE FORM 41
1 5 S EQUENTIAL RATIONALITY
A N D SUBGAME 43
P ERFECTION
2
,1 Introduction
This Chapter Introduces The Concept Of A Game And Encourages The Reader To Begin
Thinking About The Formal Analysis Of Strategic Situations. The Chapter Contains A
Short History Of Game Theory, Followed By A Description Of “Noncooperative Theory” (Which
The Book Emphasizes), A Discussion Of The Notion Of Contract And The Related Use Of
“Cooperative Theory,” And Comments On The Science And Art Of Applied Theoretical Work.
The Chapter Explains That The Word “Game” Should Be Associated With Any Well-
Defined Strategic Situation, Not Just Adversarial Contests. Finally, The Format And Style Of
The Book Are Described.
L ECTURE NOTES
Th e N on-Administrative S egment O f A First Lecture In G ame Theory M ay Run As
Follows.
• Definition Of A Strategic Situation.
Examples (Have Students Suggest Some): Chess, Poker, And Other Parlor Games;
Tennis, Football, And Other Sports; Firm Competition, International Trade, Inter-
National Relations, Firm+Employee Relations, And Other Standard Economic Exam-
Ples; Biological Competition; Elections; And So On.
Competition And Cooperation Are Both Strategic Topics. Game Theory Is A General
Methodology For Studying Strategic Settings (Which May Have Elements Of Both
Competition And Cooperation).
• The Elements Of A Formal Game Representation.
A Few Simple Examples Of The Extensive-Form Representation (Point Out The Basic
Components).
E XAMPLES AND EXPERIMENTS
1. Clap Game. Ask The Students To Stand, And Then, If They Comply, Ask Them To
Clap. (This Is A Silly Game.) Show Them How To Diagram The Strategic Situation
As An Extensive-Form Tree. The Game Starts With Your Decision About Whether To
Ask Them To Stand. If You Ask Them To Stand, Then They (Modeled As One Player)
Have To Choose Between Standing And Staying In Their Seats. If They Stand, Then You
Decide Between Saying Nothing And Asking Them To Clap. If You Ask Them To Clap,
Then They Have To Decide Whether To Clap. Write The Outcomes At Terminal Nodes In
Descriptive Terms Such As “Professor Happy, Students Confused.” Then Show How
These Outcomes Can Be Converted Into Payoff Numbers.
3
, 13
4
