TEST BANK FOR Strategy An Introduction to Game Theory 3rd Edition By Joel Watson

Contents
I General Materials 7
II Chapter-Specic Materials 12
1 Introduction 13
2 The Extensive Form 15
3 Strategies and the Normal Form 18
4 Beliefs, Mixed Strategies,
and Expected Payos 21
5 General Assumptions and Methodology 23
6 Dominance and Best Response 24
7 Rationalizability and Iterated Dominance 27
8 Location, Partnership, and Social Unrest 29
9 Nash Equilibrium 32
10 Oligopoly, Taris, Crime, and Voting 34
11 Mixed-Strategy Nash Equilibrium 35
12 Strictly Competitive Games
and Security Strategies 37
13 Contract, Law, and Enforcement
in Static Settings 38
14 Details of the Extensive Form 41
15 Sequential Rationality
and Subgame Perfection 43
16 Topics in Industrial Organization 45
17 Parlor Games 46
3
Instructor's Manual for Strategy:
An Introduction to Game Theory
Copyright 2002, 2008, 2010, 2013 by Joel Watson.
For instructors only; do not distribute.
CONTENTS 4
18 Bargaining Problems 48
19 Analysis of Simple Bargaining Games 50
20 Games with Joint Decisions;
Negotiation Equilibrium 52
21 Unveriable Investment, hold up,
Options, and Ownership 54
22 Repeated Games and Reputation 56
23 Collusion, Trade Agreements,
and Goodwill 58
24 Random Events and
Incomplete Information 60
25 Risk and Incentives in Contracting 63
26 Bayesian Nash Equilibrium
and Rationalizability 65
27 Lemons, Auctions,
and Information Aggregation 66
28 Perfect Bayesian Equilibrium 68
29 Job-Market Signaling and Reputation 70
30 Appendices 71
III Solutions to the Exercises 72
2 The Extensive Form 73
3 Strategies and the Normal Form 76
4 Beliefs, Mixed Strategies,
and Expected Payos 79
6 Dominance and best response 80
7 Rationalizability and Iterated Dominance 81
Instructor's Manual for Strategy:
An Introduction to Game Theory
Copyright 2002, 2008, 2010, 2013 by Joel Watson.
For instructors only; do not distribute.
CONTENTS 5
8 Location, Partnership, and Social Unrest 83
9 Nash Equilibrium 86
10 Oligopoly, Taris, Crime, and Voting 89
11 Mixed-Strategy Nash Equilibrium 95
12 Strictly Competitive Games
and Security Strategies 102
13 Contract, Law, and Enforcement
in Static Settings 103
14 Details of the Extensive Form 108
15 Sequential Rationality
and Subgame Perfection 110
16 Topics in Industrial Organization 114
17 Parlor Games 117
18 Bargaining Problems 119
19 Analysis of Simple Bargaining Games 121
20 Games with Joint Decisions;
Negotiation Equilibrium 123
21 Unveriable Investment, Hold Up,
Options, and Ownership 127
22 Repeated Games and Reputation 131
23 Collusion, Trade Agreements,
and Goodwill 135
24 Random Events and
Incomplete Information 138
25 Risk and Incentives in Contracting 140
26 Bayesian Nash Equilibrium
and Rationalizability 142
Instructor's Manual for Strategy:
An Introduction to Game Theory
Copyright 2002, 2008, 2010, 2013 by Joel Watson.
For instructors only; do not distribute.
CONTENTS 6
27 Lemons, Auctions,
and Information Aggregation 145
28 Perfect Bayesian Equilibrium 148
29 Job-Market Signaling and Reputation 151
30 Appendix B 155
IV Sample Questions 156
Instructor's Manual for Strategy:
An Introduction to Game Theory
Copyright 2002, 2008, 2010, 2013 by Joel Watson.
For instructors only; do not distribute.
7
Part I
General Materials
This part contains some notes on outlining and preparing a game theory course for
those adopting Strategy: An Introduction to Game Theory.
Instructor's Manual for Strategy:
An Introduction to Game Theory
Copyright 2002, 2008, 2010, 2013 by Joel Watson.
For instructors only; do not distribute.
8
Sample Syllabi
Most of the book can be covered in a semester-length (13-15 week) course. Here
is a sample thirteen-week course outline:
Weeks Topics Chapters
A. Representing Games
1 Introduction, extensive form, strategies, 1{3
and normal form
1{2 Beliefs and mixed strategies 4{5
B. Analysis of Static Settings
2{3 Best response, rationalizability, applications 6{8
3{4 Equilibrium, applications 9{10
5 Other equilibrium topics 11{12
5 Contract, law, and enforcement 13
C. Analysis of Dynamic Settings
6 Extensive form, backward induction, 14{15
and subgame perfection
7 Examples and applications 16{17
8 Bargaining 18{19
9 Negotiation equilibrium and problems of 20{21
contracting and investment
10 Repeated games, applications 22{23
D. Information
11 Random events and incomplete information 24
11 Risk and contracting 25
12 Bayesian equilibrium, applications 26{27
13 Perfect Bayesian equilibrium and applications 28{29
In a ten-week (quarter system) course, most, but not all, of the book can be
covered. For this length of course, you can easily leave out (or simply not cover in
class) some of the chapters. For example, any of the chapters devoted to applications
(Chapters 8, 10, 16, 21, 23, 25, 27, and 29) can be covered selectively or skipped
Instructor's Manual for Strategy:
An Introduction to Game Theory
Copyright 2002, 2008, 2010, 2013 by Joel Watson.
For instructors only; do not distribute.
9
without disrupting the ow of ideas and concepts. Chapters 12 and 17 contain ma-
terial that may be regarded as more esoteric than essential; one can easily have the
students learn the material in these chapters on their own. Instructors who prefer
not to cover contract can skip Chapters 13, 20, 21, and 25.
Below is a sample ten-week course outline that is formed by trimming some of
the applications from the thirteen-week outline. This is the outline that I use for my
quarter-length game theory course. I usually cover only one application from each
of Chapters 8, 10, 16, 23, 27, and 29. I avoid some end-of-chapter advanced topics,
such as the innite-horizon alternating-oer bargaining game, I skip Chapter 25, and,
depending on the pace of the course, I selectively cover Chapters 18, 20, 27, 28, and 29.
Weeks Topics Chapters
A. Representing Games
1 Introduction, extensive form, strategies, 1-3
and normal form
1-2 Beliefs and mixed strategies 4-5
B. Analysis of Static Settings
2-3 Best response, rationalizability, applications 6-8
3-4 Equilibrium, applications 9-10
5 Other equilibrium topics 11-12
5 Contract, law, and enforcement 13
C. Analysis of Dynamic Settings
6 Backward induction, subgame perfection, 14-17
and an application
7 Bargaining 18-19
7-8 Negotiation equilibrium and problems of 20-21
contracting and investment
8-9 Repeated games, applications 22-23
D. Information
9 Random events and incomplete information 24
10 Bayesian equilibrium, application 26-27
10 Perfect Bayesian equilibrium and an application 28-29
Instructor's Manual for Strategy:
An Introduction to Game Theory