I have never really understood anything in game theory except the basic Prisoner’s game. Even in that am not sure whether have understood the right lessons.
Avinash Dixit in this paper talks about restoring fun to game theory. This paper is oldish and written in 2004. But still could be used as a probable answer to Prof. Ariel Rubenstein who says Game theory is much hyped.
Game theory starts with an unfair advantage over most other scientific subjects – it is applicable to numerous interesting and thought-provoking aspects of decision-making in economics, business, politics, social interactions, and indeed to much of everyday life, making it automatically appealing to students. However, too many teachers and textbooks lose this advantage by treating the subject in such an abstract and formal way that the students’ eyes glaze over. Even the interests of the abstract theorists will be better served if introductory courses are better motivated using examples and classroom games that engage the students’ interest, and encourage them to go on to more advanced courses. This will create larger audiences for the abstract game theorists; then they can teach them the mathematics and the rigor that are surely important aspects of the subject at the higher level.
The usual practice is to introduce GT over the econ. course. Prof. Dixit says game theory should be taught before intro economics is taught.
I restrict most of my remarks to the teaching of game theory per se, and not as a part of an economics course. This is because I hold a rather radical view: I believe that an introduction to game theory should precede, not follow, the introductory economics courses in micro and macro. Knowing the concepts of strategy, rollback, and Nash equilibrium unifies many apparently distinct ideas and phenomena in economics. Therefore previous knowledge of elementary game theory will make learning economics easier. For example, if students already know assurance games, Keynesian unemployment becomes a coordination failure leading to a wrong equilibrium selection, rather than a mysterious crossing of two graphs, and many market failures in micro fall into the common framework of the prisoner’s dilemma. Also, the view of competition as live interaction of strategies is more appealing to beginners than that of an impersonal adjustment of prices by an invisible hand.
What follows is some very interesting games which help learn about concepts of economics and strategy much before the formal course starts. Wish we could have had such instruction by profs. in India..