Cooperation: GameTheoretic Approaches
Sergiu Hart and Andreu MasColell, Editors
Table of Contents
Part A: Classical Cooperative Theory

Cooperative Theory of Bargaining I: Classical
Wiliam Thomson

Cooperative Theory of Bargaining II: Modern Development
Wiliam Thomson

Classical Cooperative Theory I: Corelike Concepts
Sergiu Hart

Classical Cooperative Theory II: Valuelike Concepts
Sergiu Hart

Cooperative Theory with Incomplete Information
Beth Allen
Part B: NonCooperative Approaches

Bargaining Games
Andreu MasColell

Two Lectures on Implementation Under Complete Information:
General Results and the Core
Philip J. Reny

Implementation Theory with Incomplete Information
Beth Allen

Coalitional NonCooperative Approaches to Cooperation
Rajiv Vohra

Situation Approach to Cooperation
Joseph Greenberg
Part C: Dynamic Models

Cooperation Through Repetition: Complete Information
Sylvain Sorin

Communication, Correlation and Cooperation
Sylvain Sorin

Rationality and Bounded Rationality
Robert J. Aumann

Cooperation, Repetition and Automata
Abraham Neyman

Learning in Games: Fictitious Play Dynamics
Vijay Krishna and Tomas Sjöström

Evolution and Games: Replicator Dynamics
Vijay Krishna and Tomas Sjöström
Part D: Descriptive Theory

Descriptive Approach to Cooperation
Reinhard Selten
PREFACE
This volume includes the proceedings of the NATO Advanced Study
Institute on "Cooperation: Game Theoretic Approaches", that took
place at Stony Brook, NY, USA, from July 18 to July 29, 1994.
The Institute was a success and it is already part of a well
established biannual Stony Brook tradition which many
researchers around the world look forward to.
We thank the Institute for Decision Sciences of the State University of
New York at Stony Brook for hosting this event. It is a particular
pleasure to thank Colleen Wallahora and Eileen Zappia, for the very
successful organization of this ASI.
LIST OF AUTHORS
Prof. Beth Allen, University of Minnesota, Minneapolis
Prof. Robert J. Aumann, The Hebrew University of Jerusalem
Prof. Joseph Greenberg, McGill University, Montreal
Prof. Sergiu Hart, The Hebrew University of Jerusalem
Prof. Vijay Krishna, Pennsylvania State University at University Park
Prof. Andreu MasColell, Harvard University, and Universitat Pompeu
Fabra, Barcelona
Prof. Abraham Neyman, The Hebrew University of Jerusalem,
and State University of New York at Stony Brook
Prof. Philip J. Reny, University of Pitsburgh
Prof. Reinhard Selten, Universität Bonn
Prof. Tomas Sjöström, Harvard University
Prof. Sylvain Sorin, Université de Paris X, Nanterre,
and Ecole Normale Superieure, Paris
Prof. William Thomson, University of Rochester
Prof. Rajiv Vohra, Brown University, Providence
INTRODUCTION
Sergiu Hart and Andreu MasColell
This book constitutes a systematic exposition of the various game
theoretic approaches to the issue of cooperation.
Game theory is the study of decision making in multiperson situations,
where the outcome depends on everyone's choice. The goal of each
participant is to maximize his own utility, while taking into account
that the other participants are doing the same. In such interactive
situations, cooperation between the agents may lead to results that
are better, for everyone, than the noncooperative outcomes. A simple
 but extensively studied  example is the socalled "Prisoners'
Dilemma": Assume each one of the two players can ask a generous donor
either to give him 1 million dollars, or to give 4 million dollars to
the other player; the donor will carry out the instructions of
both players (thus, for example, if player 1 asks for $1M to himself and
player 2 asks for $4M to the other, then player 1 gets $5M and player 2
gets nothing). Clearly, whatever the other player does, it is strictly
better for each player to ask for $1M to himself (more precisely, it
will always lead to an additional $1M). This yields $1M for
each; cooperation, whereby each one asks for $4M to the other, would
have yielded each $4M instead! The Prisoners' Dilemma is by no
means an artificial example. The economic competition between firms
exhibits similar phenomena: keeping a commodity in short supply may be
to the advantage of all producers; at the same time, it may be better
for any single producer to unilaterally increase his own production.
The problems that need to be addressed are, first, whether cooperation
can be reached at all; second, by what procedures are agreements
reached; and third, which ones will be indeed attained. This volume will
survey some of the contributions of game theory to these questions,
from its early traditional theories to its current approaches.
Game theoretical approaches are usually classified as either
"cooperative" or "noncooperative". This should not be viewed
as an exclusive division; these are two ways of looking at the
same problem. The Introductory Remarks of R. J. Aumann that follow
this Introduction address this point in some detail.
Part A,
which opens this volume, surveys the classical cooperative approach.
This starts by assuming that binding agreements are possible, and it
abstracts away from the detailed bargaining procedures. The selection
of the appropriate cooperative outcome is usually based on a set
of desired postulates or axioms, which, when applied to a class
of problems, characterize one or another solution concept. Chapters 1
and 2 by W. Thomson cover the pure bargaining problems, where only
the grand coalition of all players can reach a beneficial agreement;
chapter 1 deals with the classical approaches that originate with Nash's
1950 seminal paper, and chapter 2 deals with recent axiomatizations
based on internal consistency properties (the "reduced game property").
The next two chapters, 3 and 4, by S. Hart, survey the general nperson
problems where subcoalitions of players can reach agreements as
well, and this of course influences the final outcome. The classical
cooperative solution concepts that arise are grouped into "corelike"
notions and "valuelike" notions. The former include the core, the
stable sets of von Neumann and Morgenstern, the bargaining set, the
kernel and the nucleolus; the latter include the Nash bargaining
solution, the Shapley value and their many extensions and generalizations.
Chapter 5 by B. Allen deals with games of incomplete information, i.e.,
games where some of the participants may possess private information
not known to the others. Here, the questions of cooperation are
further complicated by the need to address the informational issues;
for instance, how to ensure that the players have the incentive to
reveal the appropriate information.
Part B is devoted to noncooperative approaches, namely, noncooperative
models that lead to cooperative solutions. One may start from a
noncooperative bargaining model, like the Ståhl  Rubinstein
"alternating offers" procedure, characterize its strategic equilibria,
and relate the resulting outcomes to various cooperative solutions.
Or, one may start from a cooperative solution, and construct games
whose equilibria yield precisely this given solution. Either way, one
establishes connections between noncooperative and cooperative setups,
that further strengthen and reinforce one another. In the literature,
all this is usually referred as "bargaining procedures", "noncooperative
foundations", or "implementation". The distinctions are not
always clear, in particular since some of the recent implementation
literature is concerned with "natural" and "simple" games. Chapter 6
by A. MasColell covers bargaining procedures that lead to valuelike
cooperative solutions, and the second part of chapter 7 by P. Reny 
to corelike solutions. Implementation is discussed in chapters 7
by P. Reny and chapter 8 by B. Allen, for the case of complete
information and incomplete information, respectively. Chapter 9
by R. Vohra discusses coalitional noncooperative approaches 
i.e., models where not only individuals, but also coalitions may
act strategically. Chapter 10 by J. Greenberg surveys the theory of
"social situations", which looks for stable standards of behavior in
general coalitional interactions.
Part C deals with dynamic models, that is models of longterm
interactions between the participants. Returning, for example, to
the Prisoners' Dilemma, it seems clear that if the same participants
play it again and again, then cooperation may indeed be attained.
However, this is by no means always so; for instance, in a fixed
finitehorizon repetition, it is very difficult to escape the
noncooperative outcome of $1M each. There is by now a large and deep
literature on "repeated games"  starting with the socalled "Folk
Theorem"  that shows the extent to which cooperation may arise.
The complete information case is covered in Chapter 11 by S. Sorin.
[The incomplete information case was also covered in the lectures.
The reader is referred to the
Handbook of Game Theory with Economic
Applications
(edited by R. J. Aumann and S. Hart, NorthHolland,
volume I: 1992, volume II: 1994, volume III: forthcoming), for surveys
of this topic (see chapters 5 and 6 in volume I), as well as of many
other related topics.] Chapter 12, also by S. Sorin, then goes on to
survey models of communication; namely, one examines the effect of the
players being able to communicate among themselves before the game is
played, and also, in the case of a multistage game, during the play.
This leads to correlation and cooperation. Another important issue
in multistage interactions is that they require, by their very
nature, extremely complex strategic considerations. This suggests
considering models where the assumption that players are fully rational
 i.e., that they always choose the optimal behavior  is replaced
by "bounded rationality"  i.e., that they are restricted in one way
or another in their choices. Chapter 13 by R. J. Aumann discusses
some of the underlying ideas and approaches of this kind. The case
where strategies are implemented by automata of bounded complexity is
then studied in chapter 14 by A. Neyman. Chapter 15 by V. Krishna and T.
Sjöström is devoted to a simple but interesting learning model,
known as the "fictitious play": players assume that the past behavior
of their opponents is, in a certain sense, an appropriate predictor
of their future behavior. Chapter 16, also by V. Krishna and
T. Sjöström, studies another type of bounded rationality
models: the "evolutionary models". These are based on the biological
paradigm of natural selection and evolution, where there is no conscious
optimization at all; instead, it is the dynamics of the evolution of
the population that leads ultimately to equilibria and stable outcomes.
Part D, that concludes this volume, is concerned with "descriptive"
results. One looks at the actual behavior of participants in
various interactive situations. The question is not "what should
rational players do", but rather "what do they do" in specific
experiments. Chapter 17 by R. Selten surveys some of the large
literature on experimental game theory, in particular relating to
issues of cooperation. Since the outcomes are at times at odds with
those predicted by the various theories of rational behavior, there
is much need to understand what exactly are the principles leading to
the different behaviors.