Strategy

In this innovative textbook, Joel Watson adopts a refreshing new format for teaching game theory to advanced undergraduates. The book is rigorous and mathematically precise, but also extremely careful in its focus on using the simplest possible models and least complicated mathematics necessary. Strategy also incorporates elements of contemporary contract theory into the exposition, in a format that is highly engaging for students and easily adapted to the standard coverage familiar to teachers.

Joel Watson is associate professor of economics at the University of California, San Diego

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