Game Theory Unlocks Secrets of Strategic Decision-Making
The article introduces game theory to economists, focusing on different types of games and their solutions. There are four types of games based on information and timing. The solutions include Nash equilibrium for static complete information games, backwards induction for dynamic complete information games, Bayesian Nash equilibrium for static incomplete information games, and perfect Bayesian equilibrium for dynamic incomplete information games. The main idea is that as games become more complex, the solution concepts become stronger to eliminate unrealistic outcomes. This progression ensures that only plausible equilibria survive in richer games.