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Essays in Economic Theory, first published in 1983, combines two essays on game theory and its applications in economics. The first, ""Learning Behavior and the Noncooperative Equilibrium"", considers whether an adaptive justification, like those commonly available for the optimization models frequently employed elsewhere in economics, can be found for the Nash noncooperative equilibrium. The second essay, ""A Game of Fair Division"", was motivated by the desire to find attractive methods for solving allocation problems and bargaining disputes that are simple enough to provide useful alternatives

Starting from an example of the Allies' decision to feint at Calais and attack Normandy on D-Day, this paper models misrepresentation of intentions to competitors or enemies. Allowing for the possibility of bounded strategic rationality and rational players' responses to it yields a sensible account of lying via costless, noiseless messages. In some leading cases, the model has generically unique pure-strategy sequential equilibria, in which rational players exploit boundedly rational players, but are not themselves fooled. In others, the model has generically essentially unique mixed-strategy sequential equilibria, in which rational players' strategies protect all players from exploitation.

The article provides a survey and exposition of recent developments in dynamic noncooperative game theory and dynamic contract theory. In realistic models of economic relationships, complex long-term agreements may be mutually beneficial; legal enforcement of contracts is difficult or impossible; assymmetries of information place limits on the use of other enforcement techniques; and competitive forces are too weak to prevent strategic behavior from influencing how relationships are organized. Dynamic contract theory allows significantly better explanations of behavior in such relationships than perfectly competitive models in which agents can make complete, perfectly enforceable long-term contracts. This article provides a general exposition of static and dynamic noncooperative game theory and provides an introduction to dynamic contract theory, with special emphasis on enforcement techniques.

This article shows that the conclusions of the Zeuthen-Harsanyi theory of bargaining, which is widely regarded as an alternative justification for Nash's solution of the bargaining problem, can be extremely sensitive to small changes in the assumption that both bargainers have identical perceptions of the costs of disagreement. Whether this is the case depends on whether bargainers' priors about those costs are optimistic, in a sense made precise in this article. An axiomatic framework for modeling bargaining outcomes when bargainers perceive the costs of disagreement differently is proposed, and it is shown that a class of solutions that generalize Nash's satisfy the natural generalizations of Nash's axioms.

This paper proposes a model of cab drivers' labor supply, building on Henry S. Farber's (2005, 2008) empirical analyses and Botond Kőszegi and Matthew Rabin's (2006; henceforth "KR") theory of reference-dependent preferences. Following KR, our model has targets for hours as well as income, determined by proxied rational expectations. Our model, estimated with Farber's data, reconciles his finding that stopping probabilities are significantly related to hours but not income with Colin Camerer et al.'s (1997) negative "wage" elasticity of hours; and avoids Farber's criticism that estimates of drivers' income targets are too unstable to yield a useful model of labor supply. (JEL J22, J31, L92)

"Hide-and-seek" games are zero-sum two-person games in which one player wins by matching the other's decision and the other wins by mismatching. Although such games are often played on cultural or geographic "landscapes" that frame decisions nonneutrally, equilibrium ignores such framing. This paper reconsiders the results of experiments by Rubinstein, Tversky, and others whose designs model nonneutral landscapes, in which subjects deviate systematically from equilibrium in response to them. Comparing alternative explanations theoretically and econometrically suggests that the deviations are well explained by a structural nonequilibrium model of initial responses based on "level-k" thinking, suitably adapted to nonneutral landscapes. (JEL C72, C92)

This paper reports an experiment that elicits subjects' initial responses to 16 dominance-solvable two-person guessing games. The structure is publicly announced except for varying payoff parameters, to which subjects are given free access. Varying the parameters allows very strong separation of the behavior implied by leading decision rules. Subjects' decisions and searches show that most subjects understood the games and sought to maximize payoffs, but many had simplified models of others' decisions that led to systematic deviations from equilibrium. The predictable component of their deviations is well explained by a structural nonequilibrium model of initial responses based on level-k thinking.

Since Schelling, it has often been assumed that players make use of salient decision labels to achieve coordination. Consistent with previous work, we find that given equal payoffs, salient labels yield frequent coordination. However, given even minutely asymmetric payoffs, labels lose much of their effectiveness and miscoordination abounds. This raises questions about the extent to which the effectiveness of focal points based on label salience persists beyond the special case of symmetric games. The patterns of miscoordination we observe vary with the magnitude of payoff differences in intricate ways that suggest nonequilibrium accounts based on "level-k" thinking and "team reasoning." (JEL C72, C92)