The Achievements and
the Future of Game Theory:
A User's Perspective
Avinash Dixit
Princeton University
Summary overview
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Some game-theoretic applications were
analyzed implicitly for a long time.
Game theory is now the dominant mode
of thinking in most of economics, and
increasing in other social sciences.
There is a continuum from abstract
theory to its uses, with feedback and
contributions in both directions.
Previous implicitly game
theoretic literature
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Cournot, Bertrand examples of Nash eq
Edgeworth – shrinking contract curve
Social choice theory
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International economics
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Arrow, Sen
Johnson et al (tariff wars)
Information economics
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Akerlof, Spence, Stiglitz
Increasingly explicit game
theoretic formulations
Gradual developments in 1960s and 70s:
 Debreu-Scarf (cooperative game)
 Wilson on auctions
 Hurwicz, Gibbard et al implementation
 Nash bargaining solution in labor
 Extensive form bargaining, Rubinstein etc.
More in specific fields to follow
Microeconomics / IO
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More general, richer view of
competition
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Many dimensions of competition strategy
These other variables are not just shifters of
demand and cost curves!
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Perfect competition is not price-taking,
but “expected-utility-taking”
Max { E[Π] | E[U]  U*}, = 0 by entry
yields Max { E[U] | E[Π]  0} = U*
Industrial organization
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Repeated games
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Implicit collusion, chain-store paradox
Feedback on theory – Abreu-Pearce-Stacchetti etc.
Two-stage games
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Location and price competition
Entry deterrence
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Commitment (Spence, Dixit)
Private information (Milgrom-Roberts)
Feedback on theory - refinements
Labor economics
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Bargaining (applications in many fields)
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Raiffa – Art and Science of Negotiation
Search theory
“Decisions” aspect of Luce and Raiffa
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Matching theory and applications
Gale-Shapley, Roth et al
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Most of this field is empirical
Game theorists can try to use the rich data
Macro and public economics
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Games with one large player (govt) and
many small players (private sector)
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Mechanism design in taxation (Mirrlees)
regulation (Baron-Myerson)
Dynamic inconsistency, optimal policies
with and without commitment, relation to
perfectness. Role of delegation
International Economics
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Strategic trade policy
Two-stage games of governments & firms
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Trade liberalization agreements
Self-enforcement constraints
Need for multilateral enforcement
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Monetary and fiscal cooperation
Decision-making in common central bank
Intraction with national fiscal authorities
Political economy
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Strategic voting, agenda manipulation
May not be realistic in mass elections
But important in committees, legislatures
Rich data allows testing, estimation
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Delegation
Why? Information acquisition
Limits – Agency problems
How – Mechanism design
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Power indexes
Shapley-Shubik, Banzhaf
Institutions
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Attaining mutually preferred social outcomes
as equilibria of individual behavior
Formal (law) not perfect
Non-governmental, self-enforcing,
enforcement by third parties
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Creating focal points for assurance games
Resolving prisoners’ dilemmas by
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Information collection and dissemination
Enforcing good behavior: norms and sanctions
Order without law
http://www.youtube.com/watch?v=eC4BN9kInXg
Law without order
http://www.youtube.com/watch?v=H2JFL1Sk21Y
The next 50 years?
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Behavioral decision and game theory
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Degrees of credibility
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Comparing findings from lab and field,
pinpointing the right mix in each context
Can this be handled in Harsanyi model
Games without common knowledge
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Incomplete awareness
Basic research is a
never-ending process
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“Grook” by Piet Hein
Problems worthy of attack
Prove their worth
by hitting back