I finally got around to reading this after purchasing it over a decade ago. Game Theory for Applied Economists provides the reader with an approachable introduction to game theory through the description and solution of various canonical situations which can be analyzed through a game theoretic lens. The approach is not overly mathematical and the author tries to build intuition over focusing on the formal structure but includes proofs where required and develops formal definitions when needed. The topics included in the book are static games of complete information, dynamic games of complete information and the subsequent analysis of such games with incomplete information.
The book starts out with analyzing game theories most famous candidate of how pareto inferior outcomes can arise naturally, the prisoner's dilemma. The author describes the analysis and brings in ideas formalizing strictly dominated strategies and subsequently iterated elimination of strictly dominated strategies. The author brings introduces ideas like strategy space, common knowledge, payoff profiles and Nash equilibrium. The author then goes on to reintroduce elementary microeconomic situations like the duopoly and how to solve such games using a game theory lens. The author introduces mixed strategies as well and gives an overview of fixed point ideas associated with the proof of an existence of a Nash equilibrium with mixed strategies. The author then gets into dynamic games and backwards induction techniques. The use of subgame solutions to get to overall game solutions is discussed and the author discusses Nash equilibriums with discounting payoffs. The author uses examples of bank runs and wage bargaining to reinforce the practical economic situations which game theory can be used as a tool to analyze. The author then gets into static games of incomplete information and starts to bring in Bayesian ideas and expectations of utility over a probability space. The subject matter is approachable but the lack of formal definitions earlier in the book starts to makes the introduction of new ideas slightly more cumbersome. The author brings up some ideas from auctions to help the reader understand decision making under uncertainty. I don't love the treatment as I think it would be better to first describe mechanism design for auctions that eliminate the need for Bayesian logic and then introduce the Bayesian game (ie Vickrey auction mechanism to start vs traditional auction mechanism to then analyze). The author then gets into multi-period games of incomplete information including the job market where worker production is noisy and monetary policy with adaptive inflation expectations. The treatment gives the reader a lot of concrete examples to think about modeling under uncertainty; the natural state of the world.
Game theory for applied economists is a very readable introduction to game theory. For a reader looking for examples of how to use game theory this book is good, for a reader trying to trying to understand formal game theory better it is not as good. The use of economic examples is prioritized which is definitely useful for building intuition but it has its drawbacks for a reader moving on to read other literature where the reader will likely find themselves unprepared. Definitely recommend the book for someone looking for a quick practical introduction to the subject but for further study the book needs to be supplemented.
- Paperback: 288 pages
- Publisher: Princeton University Press; 1 edition (15 August 1992)
- Language: English
- ISBN-10: 0691003955
- ISBN-13: 978-0691003955
- Product Dimensions: 15.6 x 1.6 x 23.4 cm
- Boxed-product Weight: 449 g
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- Amazon Bestsellers Rank: 97,305 in Books (See Top 100 in Books)