Introduction to Game Theory: A Behavioral Approach

Paperback | June 20, 2012

byKenneth C. Williams

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Game theory studies the strategic interaction of people within various institutions such as political, economic, or other social institutions that are governed by a set or rules or principals. Game theory provides solutions to these strategic interactions by developing models based onassumptions about human behavior and the institution where the interaction occurs. Game theory is an interdisciplinary method to examine decision making in the fields of economics, political science, psychology, sociology, mathematics, computer programming, and biology.This book is an introduction to game theory but differs from other excellent introduction game theory texts by taking a behavioral approach. This means that basic game theory concepts are explained by using results from laboratory experiments that examine how real people behave when they participatein the games that are modeled. This approach is referred to as behavioral game theory and it seeks to use psychological reasoning to explain deviations in the predictions of standard game theory models. Behavior game theory allows for the study of how human emotions affect decision making using theassumptions of game theory. Although the study of game theory is somewhat technical because it uses mathematics to construct the various models, the intuition behind game theory is actually normative and nontechnical. This book takes a very nontechnical approach to the study of game theory so that only minimum math skills areneeded to follow the discussion in the book. The importance of game theory lies in the deductive process of reasoning and understanding how to construct models of social interaction, and not the mathematics that are involved.

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Game theory studies the strategic interaction of people within various institutions such as political, economic, or other social institutions that are governed by a set or rules or principals. Game theory provides solutions to these strategic interactions by developing models based onassumptions about human behavior and the institution...

Kenneth C. Williams is a professor of political science at Michigan State University. He received his PhD from the University of Texas at Austin and did a postdoctoral fellowship at Massachusetts Institute of Technology. He has taught at the University of California at Santa Barbara, The University of London, the University of Edinburg...

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Format:PaperbackDimensions:340 pages, 9.25 × 7.5 × 0.68 inPublished:June 20, 2012Publisher:Oxford University PressLanguage:English

The following ISBNs are associated with this title:

ISBN - 10:0199837392

ISBN - 13:9780199837397

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Table of Contents

Preface1. What is Game Theory?A. The goal of this book1. Baseball stadium model example2. Applied models vs. pure theory3. Applied models and empirical testing using experiments4. A simple and not very good experiment5. Behavioral game theory and ultimatum bargaining6. New technology used to disprove and improve old theoriesB. What is a Game?1. Games theory as an interdisciplinary method2. Game theory and equilibrium3. A game in von Neumann's sense4. Game theory and the importance of assumptions5. Rationality and self-interest in a curved exam exampleC. Behavioral assumptions1. What is rationality?2. Why is rationality needed?D. Behavioral Game Theory1. Research methods of Behavioral game theory2. Historical developments in behavioral game theoryE. Different types of games1.Cooperative vs. noncooperative games2. Competitive vs. non-competitive games3. Normal form vs. extensive form games4. Pure vs. mixed strategies5. Single shot vs. repeated games6. Complete and perfect information vs. incomplete and imperfect informationF. Summary2. What are Laboratory Experiments?A. Why Experiments?1. Ben Franklin's clothes experiment2. The need for experiments and the growth of experimentsB. Defining a Laboratory Experiment1. What is a laboratory and how does it differ from the field?2. What is the definition of an experiment?C. Establishing Causality1. Randomization of subjects to treatments and experimental controls2. Example of the importance of randomization3. Experimental controls and confounding factors4. Baseline comparisons and controlling confounding factorsD. Experimental Validity1. Difference between external, internal, and ecological validity2. Artificial vs. Natural environments3. Problems with an artificial environment4. Benefits of an artificial environmentE. Experimental Methods1. Subject motivations2. Deception3. Experimental environment4. Number of trials5. Between-subject vs. within-subject design6. Anonymity7. How to design a good experiment?F. Summary3. Ordinal Utility TheoryA. Too many choices?B. RationalityC. Utility Theory1. Utility2. Graphical utility functionsD. Ordering alternatives1. Restrictions on choice2. May's intransitive preferences experiment3. Choice and time4. Non-perverse selection rule and exhaustive set of alternatives5. Ariely's Economist's experimentE. Ordinal utility functionsF. Spatial preferences in one dimension1. Modeling ideology2. Single-peakedness and transitivityG. How utility functions for money are induced in political economy experiments1. Payoff charts2. Spatial payoffsH. Rationality, Emotions, and Social Preferences1. Rationality and emotions2. Rationality used to study other types of behavior via deviations3. Social preferences (kind of) defined4. Example of a social utility functionI. Summary4. Expected Utility TheoryA. Expected utility1. Expected value and slot machines2. St. Petersburg paradoxB. Expected Utility Theory1. Using cardinal values in a utility function2. Preferences over lotteries vs. preferences over outcomes3. Further restrictions on choice4. Calculating expected utilityC. Modeling Risk1. What is risk?2. Modeling risk aversion vs. risk acceptance behaviorD. Framing effects and alternaive theories of risk1. Framing2. Prospect Theory3. Regret theoryE. Anomalies to Expected Utility Theory1. Ellsberg Paradox2. Framing and Reference Points3. Time InconsistencyF. Alternative Theories to Expected Utility Theory1. Bounded rationality2. The BPC modelG. Binary Lottery experimentsH. Summary5. Solving for a Nash Equilibrium in Normal Form GamesA. In Cold BloodB. Beliefs and the common knowledge assumptionC. Nash equilibrium1. Defining a Nash Equilibrium2. Nash equilibrium behavior in other examples3. He-think-I-think-regress4. Pareto principal5. Nash equilibrium in a zero-sum gameD. Prisoner's DilemmaE. Elimination of dominated strategies and a dominant solvable equilibriumF. Three Player Normal Form GamesG. Eliminating dominated strategies in an election gameH. Finding dominant strategies in a spatial election experiment.I. Other experimental tests of dominant strategies1. Tversky and Kahneman's dominant strategy experiment2. Beauty contestJ. Summary6. Classic Normal Form Games and ExperimentsA. Classic Normal Form GamesB. Revisiting the Prisoner's dilemma1. Repeated prisoner's dilemma game2. Example of finite repeated game with reciprocity strategies3. Axelrod's Tournment4. Prisoner's dilemma as a route choice gameC. Social Dilemmas1. Collective goods problem2. Collective goods experiment3. Volunteer dilemmaC. Chicken Games and Brinkmanship1. Chicken run2. Brinkmanship and the Cuban missile crisis3. Hawk-dove game4. Acme-bolt truck experimentD. Battle of the Sexes Game or coordination games1.Classic story of battle of the sexes2.Coordination in a matching pennies game3. Focal point equilibriumE. Stag Hunt or Assurance Games1. The Rousseau game and risk dominant equilibrium2. Quorum-busting3. Experiment on stag hunt game: communication and trust4. Coordination and elitesF. Summary7. Solving for Mixed Strategy EquilibriumA. RPSB. Calculating Mixed Strategies1. Spades-heart game2. Mixed strategy equilibrium for spades-heart game3. Mixed strategy equilibrium for Battle of the Sexes gameC. What do mixed strategies really mean?D. Experimental Tests of mixed strategy equilibrium1. O'Neill's (1986) experiment2. Ochs' (1995) experimentE. Probabilistic choice modelsF. Testing mixed strategies using observational data1. Soccer players and mixed strategies2. Tennis players and mixed strategiesG. Summary8. Extensive Form Games and Backward InductionA. The 21 coin gameB. Defining an extensive form game1. Follow-the-leader game redux2. Formal definition of extensive form game3. Twilight Example4. Three Stooges GameC. Backwards InductionD. The importance of the order in which players move1. First mover's advantage and the chicken game2. First mover's advantage and a collective good game3. Second mover's advantage and RPS gameE. Backward Induction and the need for refinementF. Experiments on backward induction reasoning1. Race game2. Race game and chess playersG. Conclusion9. Subgame Perfect EquilibriumA. Credible vs. Non Credible threatsB. Subgame Perfect Equilibrium1. Subgames2. Threat game3. Strategy mappings and Rasmusen's computer disk game4. Player 1 moves twice game5. Kreps and Wilson's Up-Down gameC. Subgame Perfect Equilibrium and the need for refinementD. Centipede game1. How the centipede game is played2. Centipede, reputations, and Quantal Response Equilibrium3. Centipede and chess playersE. Ultimatum bargaining Games1. Ultimatum bargaining and problems with subgame perfect equilibrium2. Ultimatum bargaining and communication3. Bargaining with social preferences turned off4. Ultimatum bargaining and cultural effects5. Physical attraction and ultimatum bargainingF. Trust GamesG. NeuroeconomicsH. Wait a minute, is this really social preferences?1. Manufactured social preferences2. Strategic ignoranceI. Summary10. Imperfect and Incomplete information gamesA. The structure of imperfect and incomplete information1. Infatuation and Fickle Game2. Disney movies and incomplete and imperfect InformationB. The structure of incomplete information in game trees1. Matching pennies and information sets2. Varied information sets in a guessing game3. Restrictions placed on information setsC. Incomplete Information over player typesD. Sequential Rationality1. Establishment of beliefs and restrictions placed on beliefs2. Deriving a Sequential Equilibrium (SE)E. Signaling Games1. Truth-lying game2. Truth-lying and games of conflict and common interest3. Calculating a SE for the truth-lying gameF. Sender-receiver framework lying experimentG. Persuasion experimentH. Summary11. Bayesian LearningA. Learning in game theory models1. What is learning?2. Conditional probabilities and video game character behaviorB. Bayes' Theorem1. Updating beliefs2. Calculating Bayes' Theorem3. Problems with Bayesian decision makingC. Perfect Bayesian Equilibrium1. Weak consistency of beliefs2. Solving for a Perfect Bayesian Nash Equilibrium3. Refinements to PBED. Information cascade experimentsE. Alternative learning modelsF. SummaryReferencesAppendix 1: In-Class ExperimentsAppendix 2: GlossaryAppendix 3: Instructor's Web ResourcesAppendix 4: Solving Linear EquationsAppendix 5: Problem SetsAppendix 6: Instructor's sample examsAppendix 7: Chapter supplemental materialA. A Short History of Game TheoryB. A Short History of Political Economy ExperimentsC. Minmax TheoremD. Sincere vs. strategic voting in agenda gamesE. Strategic voting experimentF. Entry DeterrenceG. Entry-deterrence experiment (Jung, Kagel, and Levin, 1994)H. Solving for Sequential equilibrium for signaling games