This chapter presents some of the implications for economic behavior of the hypotheses that events, actions, optimization, and rationality are common knowledge. The main conclusion is that an apparently innocuous assumption of common knowledge rules out speculation, betting, and agreeing to...

Utility and subjective probability involve the systematic study of people's preferences and beliefs, including quantitative representations of preference and belief that facilitate analyses of problems in decision making and choice behavior. Its history spans more than 250 years and is mainly...

This chapter discusses the game-theoretic aspects of computing. Game theorists would probably favor stochastic models of failure. There is a great need for interesting theories on fault-tolerant computing where failures occur at random. A distributed system consists of a large number of loosely...

The study of stable coalition structures, or more generally of coalition formation, was conducted mainly within the framework of games in coalitional form. The most commonly used stability concept is the coalition-structure core, which extends individual stability to group stability. The...

This chapter has had two principal purposes. One was to develop the idea of the “coalitional function” of a cooperative game as a means of abstracting from given settings (pure exchange economies, strategic-form games, political games, and the like) the possibilities available to the various...

This chapter discusses cooperative models of bargaining. The axiomatic theory of bargaining originated in a fundamental paper by J.F. Nash. Nash introduced an idealized representation of the bargaining problem and developed a methodology that gave the hope that the undeterminateness of the terms...

This chapter discusses the game-theory literature on cost allocation. Cost allocation not only provides internal signals that guide a firm's operations but also may be a response to external competitive pressures. Cost allocation is a kind of game in which costs (and benefits) are shared among...

This chapter discusses power and stability in politics and describes the applications of cooperative game theory to political science. The focus of the chapter is on the idea of power. The use of the Shapley and Banzhaf values for simple games to measure the power of political actors in voting...

This chapter discusses social choice and aggregation of individual preferences into a social-welfare ordering. The axiom of independence of irrelevant alternatives (IIA) and Arrow's impossibility result are presented in the chapter. Two ways of overcoming the impossibility is proposed. One is to...