Game Theory for Applied Econometricians

Over the last 30 years the practice and use of game theory has changed dramatically, yet textbooks continue to present game theory with algebraic formalism and toy models. This book, on the other hand, illustrates game theory concepts using real-world data and analyses problems with real policy implications. The focus is on applying current learning to real world problems by providing an introduction to game theory and econometric analysis based on game theoretic principles using the computer language R. The book covers the standard topics of an introductory game theory course including dominant strategies, Nash equilibrium and Bayes Nash equilibrium. It layers on top of this an approach to statistics and econometrics called Structural Modeling. In this approach, key parameter estimates rely upon game theoretic analysis. The real-world examples used to illustrate these concepts vary in scope and include an analysis of bargaining between hospitals and insurers, equilibrium entry of retail tire stores, bid rigging in timber auctions and contracts in 19th century whaling. This book is aimed at the general reader with the equivalent of a bachelors degree in economics, statistics or some more technical field. The book could be used as a text for an upper level undergraduate course or a lower level graduate course in economics or business.