Game theory addresses a problem which is central to economics. Yet, according to the folklore of economics, game theory has failed. This paper argues that this is an incorrect interpretation of the game theory literature. When faced with a well-posed problem, game theory provides a solution. Procedures for facing game theory with well-posed problems are suggested, and examples of economic applications provided. The applications are Samuelson's fiat money model, Phelps' capital overaccumulation problem, multiple rational expectations equilibria, and a bargaining problem.
From cover: "Section one of this paper appeared previously as Staff Report 54, section two as Staff Report 52, and section three is new."