《GAMES AND INFORMATION AN INTRODUCTION TO GAME THEORY SECOND EDITION》

Introduction1

History1

Game Theory’s Method2

Exemp2

fying Theory2

This Book’s Style4

Notes6

PART Ⅰ GAME THEORY7

1 The Rules of the Game9

1.1 Basic Definitions9

1.2 Dominant Strategies:The Prisoner’s Dilemma16

1.3 Iterated Dominance:Battle of Bismarck Sea19

1.4 Nash Equilibrium:Boxed Pigs,Battle of the Sexes,and Ranked Coordination22

1.5 Focal Points28

Notes29

Problems32

2 Information35

2.1 Strategic and Extensive Forms of a Game35

2.2 Information Sets40

2.3 Perfect,Certain,Symmetric,and Complete Information45

2.4 The Harsanyi Transformation and Bayesian Games48

2.5 Example:The Png Settlement Game57

Notes62

Problems63

3 Mixed and Continuous Strategies67

3.1 Mixed Strategies: The Welfare Game67

3.2 Chicken, The War of Attrition, and Correlated Strategies72

3.3 Mixed Strategies with General Parameters and N Players: The Civic Duty Game77

3.4 Randomizing versus Mixing: The Auditing Game81

3.5 Continuous Strategies: The Cournot Game83

Notes86

Problems89

4 Dynamic Games with Symmetric Information93

4.1 Subgame Perfectness93

4.2 An Example of Perfectness: Entry Deterrence I96

4.3 Credible Threats, Sunk Costs, and the Open-Set Problem in the Game of Nuisance Suits98

4.4 Recoordination of Pareto-Dominant Equilibria in Subgames:Pareto Perfection106

4.5 Discounting108

4.6 Evolutionary Equilibrium: The Hawk-Dove Game110

Notes115

Problems116

5 Reputation and Repeated Games with Symmetric Information121

5.1 Finitely Repeated Games and the Chainstore Paradox121

5.2 Infinitely Repeated Games, Minimax Punishments and the Folk Theorem123

5.3 Reputation: The One-Sided Prisoner’s Dilemma129

5.4 Product Quality in an Infinitely Repeated Game131

5.5 Markov Equilibria and Overlapping Generations in the Game of Customer Switching Costs135

Notes137

Problems140

6 Dynamic Games with Asymmetric Information143

6.1 Perfect Bayesian Equilibrium: Entry Deterrence Ⅱ and Ⅲ143

6.2 Refining Perfect Bayesian Equilibrium: The PhD Admissions Game148

6.3 The Importance of Common Knowledge: Entry Deterrence Ⅳ and Ⅴ152

6.4 Incomplete Information in the Repeated Prisoner’s Dilemma:The Gang of Four Model154

6.5 The Axelrod Tournament156

Notes158

Problems159

PART Ⅱ ASYMMETRIC INFORMATION163

7 Moral Hazard: Hidden Actions165

7.1 Categories of Asymmetric Information Models165

7.2 A Principal-Agent Model: The Production Game169

7.3 Finding Optimal Contracts:The Three-Step Procedure and the Incentive Compatibility and Participation Constraints175

7.4 Optimal Contracts:The Broadway Game177

7.5 State-Space Diagrams:Insurance Games I and Ⅱ182

Notes187

Problems191

8 Topics in Moral Hazard195

8.1 Pooling versus Separating Equilibria and the Revelation Principle195

8.2 An Example of Moral Hazard with Hidden Knowledge:The Salesman Game199

8.3 Renegotiation of Contracts:The Repossession Game203

8.4 Efficiency Wages206

8.5 Tournaments207

8.6 Institutions and Agency Problems209

8.7 Teams213

Notes216

Problems219

9 Adverse Selection223

9.1 Introduction:Production Game ⅦII223

9.2 Adverse Selection under Certainty:Lemons I and II224

9.3 Heterogeneous Tastes:Lemons III and IⅣ228

9.4 Adverse Selection under Uncertainty:Insurance Game Ⅲ231

9.5 Other Equilibrium Concepts:Wilson Equilibrium and Reactive Equilibrium235

9.6 The Groves Mechanism237

9.7 A Variety of Applications239

Notes242

Problems245

10 Signalling249

10.1 The Informed Player Moves First:Signalling249

10.2 Variants on the Signalling Model of Education253

10.3 General Comments on Signalling in Education257

10.4 The Informed Player Moves Second:Screening259

10.5 Two Signals:The Game of Underpricing New Stock Issues265

Notes269

Problems270

PART Ⅲ APPLICATIONS273

11 Bargaining275

11.1 The Basic Bargaining Problem:Splitting a Pie275

11.2 The Nash Bargaining Solution276

11.3 Alternating Offers over Finite Time279

11.4 Alternating Offers over Infinite Time281

11.5 Incomplete Information284

Notes289

Problems290

12 Auctions293

12.1 Auction Classification and Private-Value Strategies293

12.2 Comparing Auction Rules298

12.3 Common-Value Auctions and the Winner’s Curse300

12.4 Information in Common-Value Auctions303

Notes304

Problems306

13 Pricing309

13.1 Quantities as Strategies: Cournot Equilibrium Revisited309

13.2 Prices as Strategies: Bertrand Equilibrium314

13.3 Location Models319

13.4 Comparative Statics and Supermodular Games325

13.5 Durable Monopoly330

Notes335

Problems338

14 Entry341

14.1 Innovation and Patent Races341

14.2 Signal Jamming348

14.3 Predatory Pricing: The Kreps-Wilson Model352

14.4 Entry for Buyout355

Notes359

15 The New Industrial Organization361

15.1 Credit and the Age of the Firm: The Diamond Model361

15.2 Takeovers and Greenmail364

15.3 Market Microstructure369

15.4 Rate of Return Regulation and Government Procurement373

Appendix A: Answers to Odd-Numbered Problems381

Appendix B: Mathematics429

Notation429

Glossary433

Risk436

Supermodularity439

References and Name Index441

Index443