This textbook offers a systematic, self-contained account of the main contributions of modern game theory and its applications to economics. Starting with a detailed description of how to model strategic situations, the discussion proceeds by studying basic solution concepts, their main refinements, games played under incomplete information, and repeated games. For each of these theoretical developments, there is a companion set of applications that cover the most representative instances of game-theoretic analysis in economics, e.g. oligopolistic competition, public goods, coordination failures, bargaining, insurance markets, implementation theory, signaling and auctions. The theory and applications covered in the first part of the book fall under the so-called 'classical approach to game theory, which is founded on the paradigm of players unlimited rationality. The second part shifts towards topics that no longer abide by that paradigm. This leads to the study of topics such as the interplay between evolution and rationality.
Part I. Theoretical Framework:
1. Introduction and examples
2. The representation of a game in extensive form
3. The representation of a game in strategic form
4. The mixed extension of a game
5. Mixed and behavioral strategies
6. Representation in coalition form
Summary
Exercises
Part II. Strategic-Form Analysis: Theory:
7. Dominance and iterative dominance
8. Nash equilibrium
9. Zero-sum bilateral games
10. Nash equilibrium: formal existence results
11. Strong and coalition-proof equilibrium
12. Correlated equilibrium
13. Rationalizability
Summary
Exercises
Part III. Strategic-Form Analysis: Applications:
14. Oligopoly (I): static models
15. Mechanism design (I): efficient allocation of public goods
16. Mechanism design (II): Nash implementation
17. Markets (I): macroeconomic coordination failures
Summary
Exercises
Part IV. Refinements of Nash Equilibrium: Theory:
18. Introduction
19. Refinements excluding 'incredible threats': examples
20. Subgame-perfect equilibrium
21. Weak-perfect Bayesian equilibrium
22. Refinements excluding 'untenable beliefs': examples
23. Sequential equilibrium
24. Perfect and proper equilibria
25. Strategic-form refinements
Summary
Exercises
Part V. Refinements of Nash Equilibrium: Applications:
26. Oligopoly (II): sequential moves
27. Markets (II): decentralized price formation
28. Oligopoly (III): differentiated products
29. Mechanism design (III): efficient allocation of an indivisible object
Summary, Exercises
Part VI. Incomplete Information: Theory:
30. Introduction and examples
31. Bayesian games
32. Bayes-Nash equilibrium
33. Signalling games
34. Mixed strategies revisited: a purification approach
35. Forward induction
Summary
Exercises
Part VII. Incomplete Information: Applications:
36. Markets (III): signalling in the labor market
37. Markets (IV): insurance markets and adverse selection
38. Mechanism design (IV): one-sided auctions
39. Mechanism design (V): buyer-seller trade
Summary
Exercises
Part VIII. Repeated Interaction: Theory:
40. Introduction and examples
41. Repeated games: basic theoretical framework
42. Folk theorems: Nash equilibrium
43. Reputation and 'irrationality': informal discussion
44. Folk theorems: subgame=perfect equilibrium
45. Reputation and 'irrationality': formal analysis
Summary
Exercises
Part IX. Repeated Interaction: Applications:
46. Oligopoly (IV): intertemporal collusion in a Cournot scenario
47. Oligopoly (V): intertemporal collusion in a Bertrand scenario
48. Markets (V): efficiency, wages and unemployment
Summary
Exercises
Part X. Evolutionary Foundations of Equilibrium:
49. Introduction
50. Static analysis
51. Basic dynamic analysis
52. Evolution in social environments
53. The evolution of cooperation: an example
Summary
Exercises
Part XI. Learning to Play:
54. Introduction
55. Reinforcement learning
56. Static perceptions and Nash equilibrium
57. Memory, expectations and foresight
Summary
Exercises
Part XII. Social Learning and Equilibrium Selection:
58. Introduction
59. Evolutionary games: theoretical framework
60. Evolutionary games: alternative scenarios
61. Stochastic stability and equilibrium selection
62. Experimental evidence
63. Perturbed Markov processes: basic concepts and techniques
64. Reinforcement learning with flexible aspirations
Summary
Exercises.
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