Solution Manual Strategy An Introduction to Game Theory 3rd Edition by Joel Watson
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Instructor’s Manual for Strategy: An Introduction to
Game Theory Third Edition by Joel Watson with
Jesse Bull A+
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.
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
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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 applications28–29
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 without disrupting the flow 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 infinite-horizon alternating-offer
bargaining game, I skip Chapter 25, and, depending on the pace of the course, I selectively cover
Chapters 18, 20, 27, 28, and 29.
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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
Experiments and a Course Competition
In addition to assigning regular problem sets, it can be fun and instructive to run a course-long
competition between the students. The competition is mainly for sharpening the students’ skills
and intuition, and thus the students’ performance in the course competition should not count
toward the course grades. The competi- tion consists of a series of challenges, classroom
experiments, and bonus questions. Students receive points for participating and performing near
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the top of the class. Bonus questions can be sent by e-mail; some experiments can be done by e-
mail as well. Prizes can be awarded to the winning students at the end of the term. Some
suggestions for classroom games and bonus questions appear in various places in this manual.
Level of Mathematics and Use of Calculus
Game theory is a technical subject, so the students should come into the course with the proper
mathematics background. For example, students should be very comfortable with set notation,
algebraic manipulation, and basic probability theory. Appendix A in the textbook provides a
review of mathematics at the level used in the book.
Some sections of the textbook benefit from the use of calculus. In particular, a few examples and
applications can be analyzed most easily by calculating derivatives. In each case, the expressions
requiring differentiation are simple polynomials (usually quadratics). Thus, only the most basic
knowledge of differentiation suffices to follow the textbook derivations. You have two choices
regarding the use of calculus.
First, you can make sure all of the students can differentiate simple polynomials; this can be
accomplished by either (a) specifying calculus as a prerequisite or (b) asking the students to read
Appendix A at the beginning of the course and then perhaps reinforcing this by holding an extra
session in the early part of the term to review how to differentiate a simple polynomial.
Second, you can avoid calculus altogether by either providing the students with non-calculus
methods to calculate maxima or by skipping the textbook examples that use calculus. Here is a
list of the examples that are analyzed with calculus in the textbook:
• the partnership example in Chapters 8 and 9,
the Cournot application in Chapter 10 (and the tariff and crime applications in this
chapter, but the analysis of these applications is not done in the text),
• the Stackelberg example in Chapter 15,
the advertising and limit capacity applications in Chapter 16 (they are based on the
Cournot model),
• the dynamic oligopoly model in Chapter 23 (Cournot-based),
the discussion of risk-aversion in Chapter 25 (in terms of the shape of a utility function),
• the Cournot example in Chapter 26, and
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