Strategy: an introduction to game theory

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Strategy: An Introduction to Game Theory Second Edition

Instructors’ Manual
Joel Watson with Jesse Bull April 2008

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Strategy: An Introduction to Game Theory, Second Edition, Instructors’ Manual, version 4/2008.

c Copyright 2008, 2002 by Joel Watson. This document is available, with the permission of W. W. Norton & Company, for use by textbook adopters in conjunction with thetextbook. The authors thank Pierpaolo Battigalli, Takako Fujiwara-Greve, Michael Herron, David Miller, David Reinstein, Christopher Snyder, and Charles Wilson for pointing out some typographical errors in earlier versions of this manual.

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This Instructors’ Manual has four parts. Part I contains some notes on outlining and preparing a game theory course that is based on the textbook. Part IIcontains more detailed (but not overblown) materials that are organized by textbook chapter. Part III comprises solutions to all of the exercises in the textbook. Part IV contains some sample examination questions. Please report any typographical errors to Joel Watson (jwatson@ucsd.edu). Also feel free to suggest new material to include in the instructors’ manual or web site.

Instructors' Manualfor Strategy: An Introduction to Game Theory

Copyright 2002, 2008 by Joel Watson For instructors only; do not distribute.

Contents
I II General Materials Chapter-Specific Materials 7 12
13 15 19 22 24 25 28 30 32 34 35 37 38 41

1 Introduction 2 The Extensive Form 3 Strategies and the Normal Form 4 Beliefs, Mixed Strategies, and Expected Payoffs 5 General Assumptions and Methodology 6Dominance and Best Response 7 Rationalizability and Iterated Dominance 8 Location and Partnership 9 Nash Equilibrium 10 Oligopoly, Tariffs, Crime, and Voting 11 Mixed-Strategy Nash Equilibrium 12 Strictly Competitive Games and Security Strategies 13 Contract, Law, and Enforcement in Static Settings 14 Details of the Extensive Form 15 Backward Induction and Subgame Perfection 16 Topics in IndustrialOrganization 17 Parlor Games

43 45 46

Instructors' Manual for Strategy: An Introduction to Game Theory

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Copyright 2002, 2008 by Joel Watson For instructors only; do not distribute.

CONTENTS 18 Bargaining Problems 19 Analysis of Simple Bargaining Games 20 Games with Joint Decisions; Negotiation Equilibrium 21 Unverifiable Investment, Hold Up, Options, and Ownership 22 Repeated Games andReputation 23 Collusion, Trade Agreements, and Goodwill 24 Random Events and Incomplete Information 25 Risk and Incentives in Contracting 26 Bayesian Nash Equilibrium and Rationalizability 27 Lemons, Auctions, and Information Aggregation 28 Perfect Bayesian Equilibrium 29 Job-Market Signaling and Reputation 30 Appendices

4 48 50

52 54 56 58 60 63 65 66 68 70 71

III

Solutions to theExercises

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73 77 82 84 86

2 The Extensive Form 3 Strategies and the Normal Form 4 Beliefs, Mixed Strategies, and Expected Payoffs 6 Dominance and Best Response 7 Rationalizability and Iterated Dominance

Instructors' Manual for Strategy: An Introduction to Game Theory

Copyright 2002, 2008 by Joel Watson For instructors only; do not distribute.

CONTENTS 8 Location and Partnership 9Nash Equilibrium 10 Oligopoly, Tariffs, Crime,and Voting 11 Mixed-Strategy Nash Equilibrium 12 Strictly Competitive Games and Security Strategies 13 Contract, Law, and Enforcement in Static Settings 14 Details of the Extensive Form 15 Backward Induction and Subgame Perfection 16 Topics in Industrial Organization 17 Parlor Games 18 Bargaining Problems 19 Analysis of Simple Bargaining Games 20 Gameswith Joint Decisions; Negotiation Equilibrium 21 Unverifiable Investment, Hold Up, Options, and Ownership 22 Repeated Games and Reputation 23 Collusion, Trade Agreements, and Goodwill 24 Random Events and Incomplete Information 25 Risk and Incentives in Contracting 26 Bayesian Nash Equilibrium and Rationalizability

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