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Can Game Theory be Saved

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  • Menezes, Flavio
  • Quiggin, John

Abstract

Game-theoretic analysis is a well-established part of the toolkit of economic analysis. In crucial respects, however, game theory has failed to deliver on its original promise of generating sharp predictions of behavior in situations where neoclassical microeconomics has little to say. Experience has shown that in most situations, it is possible to tell a game-theoretic story to fit almost any possible outcome. We argue that, in general, any individually rational outcome of an economic interaction may be supported as the Nash equilibrium of an appropriately chosen game, and that a wide range of these outcomes will have an economically reasonable interpretation. We consider possible attempts to salvage the original objectives of the game-theoretic research program. In at least some cases, information on institutional structures and observations of interactions between agents can be used to limit the set of strategies that may be considered reasonable

Suggested Citation

  • Menezes, Flavio & Quiggin, John, 2007. "Can Game Theory be Saved," Risk and Sustainable Management Group Working Papers 151181, University of Queensland, School of Economics.
    • Handle: RePEc:ags:uqsers:151181
    DOI: 10.22004/ag.econ.151181
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    References listed on IDEAS

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    1. Flavio Menezes & John Quiggin, 2007. "Games without Rules," Theory and Decision, Springer, vol. 63(4), pages 315-347, December.
    2. Green, Richard J & Newbery, David M, 1992. "Competition in the British Electricity Spot Market," Journal of Political Economy, University of Chicago Press, vol. 100(5), pages 929-953, October.
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    4. Klemperer, Paul D & Meyer, Margaret A, 1989. "Supply Function Equilibria in Oligopoly under Uncertainty," Econometrica, Econometric Society, vol. 57(6), pages 1243-1277, November.
    5. Grant, Simon & Quiggin, John, 1994. "Nash equilibrium with mark-up-pricing oligopolists," Economics Letters, Elsevier, vol. 45(2), pages 245-251, June.
    6. David M. Kreps & Jose A. Scheinkman, 1983. "Quantity Precommitment and Bertrand Competition Yield Cournot Outcomes," Bell Journal of Economics, The RAND Corporation, vol. 14(2), pages 326-337, Autumn.
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    More about this item

    Keywords

    Institutional and Behavioral Economics; Research Methods/ Statistical Methods;

    JEL classification:

    • C7 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory

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