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1、CHAPTEREIGHTGameTheoryThischapterprovidesanintroductiontononcooperativegametheory,atoolusedtounderstandthestrategicinteractionsamongtwoormoreagents.Therangeofapplica-tionsofgametheoryhasbeengrowingconstantly,includingallareasofeconomics(fromlaboreconomicstomacroeconomics)andother?eldssuch
2、aspoliticalscienceandbiology.Gametheoryisparticularlyusefulinunderstandingtheinteractionbetween?rmsinanoligopoly,sotheconceptslearnedherewillbeusedextensivelyinChapter15.WebeginwiththecentralconceptofNashequilibriumandstudyitsapplicationinsim-plegames.Wethengoontostudyre?nementsofNashequi
3、libriumthatareusedingameswithmorecomplicatedtimingandinformationstructures.BasicConceptsThusfarinPart3ofthistext,wehavestudiedindividualdecisionsmadeinisolation.Inthischapterwestudydecisionmakinginamorecomplicated,strategicsetting.Inastrategicset-ting,apersonmaynolongerhaveanobviouschoice
4、thatisbestforhimorher.Whatisbestforonedecision-makermaydependonwhattheotherisdoingandviceversa.Forexample,considerthestrategicinteractionbetweendriversandthepolice.Whetherdriversprefertospeedmaydependonwhetherthepolicesetupspeedtraps.Whetherthepolice?ndspeedtrapsvaluabledependsonhowmuchdr
5、iversspeed.Thisconfusingcircularitywouldseemtomakeitdif?culttomakemuchheadwayinanalyzingstrategicbehavior.Infact,thetoolsofgametheorywillallowustopushtheanalysisnearlyasfar,forexample,asouranalysisofconsumerutilitymaximizationinChapter4.Therearetwomajortasksinvolvedwhenusinggametheorytoan
6、alyzeaneconomicsituation.The?rstistodistillthesituationintoasimplegame.Becausetheanalysisinvolvedinstrategicsettingsquicklygrowsmorecomplicatedthaninsimpledecisionproblems,itisimportanttosimplifythesettingasmuchaspossiblebyretainingonlyafewessentialelements.Thereisacertainarttodistillingg
7、amesfromsituationsthatishardtoteach.Theexamplesinthetextandproblemsinthischaptercanserveasmodelsthatmayhelpinapproachingnewsituations.Thesecondtaskisto‘‘solve’’thegivengame,whichresultsinapredictionaboutwhatwillhappen.Tosolveagame,onetakesanequilibriumconcept(e.g.,N
