Chapter

The Problems of Game Theory

David M. Kreps

in Game Theory and Economic Modelling

Published in print October 1990 | ISBN: 9780198283812
Published online November 2003 | e-ISBN: 9780191596568 | DOI: http://dx.doi.org/10.1093/0198283814.003.0005

Series: Clarendon Lectures in Economics

 The Problems of Game Theory

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The weaknesses of game theory for purposes of economic modelling are discussed: the theory requires that protocols for interaction are precise (whereas in the real world they are often ambiguous). The theory often provides many equilibria and no way to choose among them. Despite work on so‐called refinements of equilibrium, the theory fails to help us understand how individuals react to counter‐theoreticals in dynamic interactions. Equilibria are often very delicate, depending on states of nature that have very small probability a priori. The theory fails to explain how the rules of a particular game got to be what they are.

Keywords: delicate equilibria; game rules; game theory; interaction protocols; multiple equilibria; refinements of equilibrium

Chapter.  14541 words.  Illustrated.

Subjects: Microeconomics

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