Modern game theory is sufficiently powerful to offer us insights into how legal rules affect the way people behave. The challenge is one of applying its highly technical tools, many of which have been developed only in the last decade, to a new environment. Our ambition is to show how even in the context of so simple a problem, a rigorous focus on strategic behavior advances our understanding of the legal rules. In the second part of the chapter, we review the best known paradigms of game theory, such as the stag hunt, the prisoner's dilemma, and matching pennies, and show both how they may be applied to legal problems and what limits we encounter in doing this. Chapter 2 examines how parties interact with each other over time.
Subsequent chapters explore more difficult issues.
Incomplete information is the central problem in game theory and the law. Shaping laws that give parties an incentive to act in a way that leaves everyone better off is a straightforward matter as long as all the parties and those who craft and enforce the legal rule all possess enough information. Complications arise, however, because the necessary information is often not known or, more commonly, is known, but not to all the parties or not to the court. Chapter 3 focuses on the simplest information problem. With respect to some kinds of information, legal rules have to confront a problem of unraveling, situations in which the ability of people to draw inferences from silence leads to the revelation of information.