Game Theory: An Introduction, 2nd Edition

Preface for the First Edition

Man is a gaming animal. He must always be trying to get the better in something or other.

—Charles Lamb, Essays of Elia, 1823

Why do countries insist on obtaining nuclear weapons? What is a fair allocation of property taxes in a community? Should armies ever be divided, and in what way in order to attack more than one target? How should a rat run to avoid capture by a cat? Why do conspiracies almost always fail? What percentage of offensive plays in football should be passes, and what percentage of defensive plays should be blitzes? How should the assets of a bankrupt company be allocated to the debtors? These are the questions that game theory can answer. Game theory arises in almost every facet of human interaction (and inhuman interaction as well). Either every interaction involves objectives that are directly opposed, or the possibility of cooperation presents itself. Modern game theory is a rich area of mathematics for economics, political science, military science, finance, biological science (because of competing species and evolution), and so on.1

This book is intended as a mathematical introduction to the basic theory of games, including noncooperative and cooperative games. The topics build from zero sum matrix games, to nonzero sum, to cooperative games, to population games. Applications are presented to the basic models of competition in economics: Cournot, Bertrand, and Stackelberg models. The theory of auctions is introduced and the ...