chapter  2
39 Pages

THE ELEMENTS OF GAME THEORY

This chapter introduces the central ideas in game theory. It begins by showing how rational players can logically weed out strategies which are strategically inferior (sections 2.3 and 2.4). Such elimination of strategies relies on what game theory refers to as dominance reasoning and it sometimes requires the assumption of common knowledge of rationality (CKR). It is important because it yields clear predictions of what instrumentally rational players will do in some games by means of a step-by-step logic. However, in many games dominance reasoning offers no clear (or useful) predictions of what might happen. In these circumstances, game theorists commonly turn to the Nash equilibrium solution concept, named after its creator John Nash (section 2.5). The basic idea behind this concept is that rational players should not want to change their strategies if they knew what each of them had chosen to do.