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.
This report is part of the RAND Corporation Paper series. The paper was a product of the RAND Corporation from 1948 to 2003 that captured speeches, memorials, and derivative research, usually prepared on authors' own time and meant to be the scholarly or scientific contribution of individual authors to their professional fields. Papers were less formal than reports and did not require rigorous peer review.
This document and trademark(s) contained herein are protected by law. This representation of RAND intellectual property is provided for noncommercial use only. Unauthorized posting of this publication online is prohibited; linking directly to this product page is encouraged. Permission is required from RAND to reproduce, or reuse in another form, any of its research documents for commercial purposes. For information on reprint and reuse permissions, please visit www.rand.org/pubs/permissions.
The RAND Corporation is a nonprofit institution that helps improve policy and decisionmaking through research and analysis. RAND's publications do not necessarily reflect the opinions of its research clients and sponsors.