Introduction to Game Theory

by Jonathan Cave


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This paper, originally written as a pedagogical note for a RAND Graduate School course, introduces the concepts and tools of game theory in the context of microeconomics. The author defines normal and extensive forms of a game, and pure and mixed strategies. For games of opposed interests, the basic concepts of maxmin and equilibrium strategies are defined and illustrated. Moving to general noncooperative games, the concepts of Stackelberg equilibrium and disequilibrium are presented in a duopoly game, and two logically consistent foundations for the competitive solution are given. The credibility of threats is discussed, and perfect equilibrium defined. Finally, the author discusses agreements, defining self-enforcing agreements, discussing institutional arrangements that facilitate cooperation, and concluding with a description of cooperation in repeated games.

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