, Strategy: An Introduction to Game Theory
Third Edition
Instructor’s Manual
Joel Watson with Jesse Bull
This Instructor’s Manual has four parts. Part I contains some notes on outlining and
preparing a game-theory course that is based on the textbook. Part II contains more
detailed (but not overblown) materials that are organized by textbook chapter. Part
III comprises solutions to the exercises in the textbook, except those with solutions
provided in the book. 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 instructor’s manual or Web site. If you
have a good example, application, or experiment that you don’t mind sharing with
others, please send it to us.
Acknowledgments
Bull and Watson thank Pierpaolo Battigalli, Kristy Buzard, Takako Fujiwara-Greve,
Michael Herron, David Miller, Wilfried Pauwels, David Reinstein, Christopher Sny-
der, Igor Vaynman, and Charles Wilson for identifying some typographical errors in
earlier versions of this manual.
.
,Contents
I General Materials 7
II Chapter-Specific Materials 12
1 Introduction 13
2 The Extensive Form 15
3 Strategies and the Normal Form 18
4 Beliefs, Mixed Strategies,
and Expected Payoffs 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, Tariffs, 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
.
, Created by Joel Watson with Jesse Bull
18 Bargaining Problems 48
19 Analysis of Simple Bargaining Games 50
20 Games with Joint Decisions;
Negotiation Equilibrium 52
21 Unverifiable 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 Payoffs 79
6 Dominance and best response 80
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