The Art of Strategy
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Pioneering books are often enjoyable to read. In this spirit, we recommend John von Neumann and Oscar Morgenstern’s Theory of Games and Economic Behavior (Princeton, NJ: Princeton University Press, 1947), even though the mathematics may be hard to follow in places. Thomas Schelling’s The Strategy of Conflict (Cambridge, MA: Harvard University Press, 1960) is more than a just pioneering book; it continues to provide instruction and insight.

For an entertaining exposition of zero-sum games, J. D. Williams’s The Compleat Strategyst, rev. ed. (New York: McGraw-Hill, 1966) still cannot be beat. The most thorough and highly mathematical treatment of pre-Schelling game theory is in Duncan Luce and Howard Raiffa, Games and Decisions (New York: Wiley, 1957). Among general expositions of game theory, Morton Davis, Game Theory: A Nontechnical Introduction, 2nd ed. (New York: Basic Books, 1983), is probably the easiest to read.

In terms of biographies, surely the most famous book on game theory is Sylvia Nasar, A Beautiful Mind: The Life of Mathematical Genius and Nobel Laureate John Nash (New York: Touchstone, 2001). The book is even better than the movie. William Poundstone’s Prisoner’s Dilemma (New York: Anchor, 1993) goes beyond a description of the eponymous game to offer a first-rate biography of John von Neumann, the polymath who invented the modern computer along with game theory.

In terms of textbooks, we are naturally partial to two of our own. Avinash Dixit and Susan Skeath, Games of Strategy, 2nd ed. (New York: W. W. Norton & Company, 2004), is designed for undergraduates. Barry Nalebuff and Adam Brandenburger’s Co-opetition (New York: Doubleday, 1996) offers an application of game theory for MBAs and managers more broadly.

Other excellent textbooks include Robert Gibbons, Game Theory for Applied Economists (Princeton, NJ: Princeton University Press, 1992); John McMillan, Games, Strategies, and Managers: How Managers Can Use Game Theory to Make Better Business Decisions (New York: Oxford University Press, 1996); Eric Rasmusen, Games and Information (London: Basil Blackwell, 1989); Roger B. Myerson, Game Theory: Analysis of Conflict (Cambridge, MA: Harvard University Press, 1997); Martin J. Osborne and Ariel Rubinstein, A Course in Game Theory (Cambridge, MA: MIT Press, 1994); and Martin J. Osborne, An Introduction to Game Theory (New York: Oxford University Press, 2003). We always look forward to Ken Binmore’s books. Playing for Real: A Text on Game Theory (New York: Oxford University Press, 2007) is the much-anticipated revision of his Fun and Games (Lexington, MA: D. C. Heath, 1992). (Warning: The title is a bit misleading. The book is actually quite challenging, both conceptually and mathematically. But it is very rewarding for the well prepared.) Binmore’s latest offering is Game Theory: A Very Short Introduction (New York: Oxford University Press, 2008).

The following books are much more advanced and are used largely in graduate courses. They are strictly for the very ambitious: David Kreps, A Course in Microeconomic Theory (Princeton, NJ: Princeton University Press, 1990) and Drew Fudenberg and Jean Tirole, Game Theory (Cambridge, MA: MIT Press, 1991).

One of our sins of omission is a discussion of “cooperative games.” Here players choose and implement their actions jointly and produce equilibria like the Core or the Shapley Value. This was done because we think cooperation should emerge as the equilibrium outcome of a noncooperative game in which actions are chosen separately. That is, individuals’ incentive to cheat on any agreement should be recognized and made a part of their strategy choice. Interested readers can find treatments of cooperative games in the books by Davis and by Luce and Raiffa mentioned above and more extensively in Martin Shubik’s Game Theory in the Social Sciences (Cambridge, MA: MIT Press, 1982).

There are several terrific books applying game theory to specific contexts. One of the most powerful applications is to auction design. Here there is no better source than Paul Klemperer’s Auctions: Theory and Practice, The Toulouse Lectures in Economics, (Princeton, NJ: Princeton University Press, 2004). Professor Klemperer was behind the design of many of the spectrum auctions, including the UK auction, which helped bring in some £34 billion and nearly bankrupted the telecom industry in the process. For game theory applied to law, see Douglas Baird, Robert Gertner, and Randal Picker, Game Theory and the Law (Cambridge, MA: Harvard University Press, 1998). One of their many contributions is the idea of an information escrow, which turns out to be a particularly useful tool in negotiation. In the field of politics, noteworthy books include Steven Brams, Game Theory and Politics (New York: Free Press, 1979), and his more recent Mathematics and Democracy: Designing Better Voting and Fair-Division Procedures (Princeton, NJ: Princeton University Press, 2007); William Riker, The Art of Political Manipulation (New Haven, CT: Yale University Press, 1986); and the more technical approach of Peter Ordeshook’s Game Theory and Political Theory (New York: Cambridge University Press, 1986). For applications to business, Michael Porter’s Competitive Strategy (New York: Free Press, 1982); R. Preston McAfee’s Competitive Solutions: The Strategist’s Toolkit (Princeton, NJ: Princeton University Press, 2005); and Howard Raiffa’s The Art and Science of Negotiation (Cambridge, MA: Harvard University Press, 1982) are excellent resources.

For readers looking to brush up their Rock Paper Scissors skills, we recommend Douglas Walker and Graham Walker’s The Official Rock Paper Scissors Strategy Guide (New York: Simon & Schuster, 2004).

 

Copyright © 2008 by Avinash Dixit and Barry Nalebuff