Game Theory (2013-14)
Last up-dated: March 17, 2014
Course number: ECO290E
Winter / Tue 9:10-10:40 & 10:50-12:20 / Room 5L
Office hours: TBA / C911
1. Important Announcement
A take-home midterm exam will be posted at noon on March 9 (Sun) via gateway. March 5
We have a final exam on March 29 (Sat), 10:00 to 12:00 at room 5L. February 18
There will be no lecture on February 25th. February 18
We have a FIRST lecture on February 4th (Tue). The class starts at 9:10 (NOT 9:00) at room 5L. See you soon :) January 30
2. Course Description syllabus
This is an introductory course in game theory, which will provide you with mathematical tools for analyzing strategic situations - your optimal decision depends on what other people will do. In particular, we will study central solution concepts in game theory such as Nash equilibrium, subgame perfect equilibrium, and Bayesian equilibrium. Game theory has been widely recognized as an important analytical tool in such fields as economics, management, political science, phycology and biology. To illustrate its analytical value, we will cover a variety of applications that include international relations, development, business competition, auctions, marriage market, and so forth. There is no prerequisite for this course, although some background on microeconomics and familiarity of probabilistic thinking would be helpful.
3. Course Outline
Introduction and motivation Feb.4
Static games and Nash equilibrium Feb.4
*Reading: Myerson (1999) "Nash Equilibrium and the History of Economic Theory" Journal of Economic Literature link
Why and how is Nash equilibrium reached? Feb.18
Handout: Gibbons (1997) "An Introduction to Applicable Game Theory" Journal of Economic Perspectives link
*Reading: Binmore (1987) "Modeling Rational Players I" Economics and Philosophy, 3: 179-214.
**Reading: Brandenburger (1992) "Knowledge and Equilibrium in Games" Journal of Economic Perspectives link
Static games with Continuous Strategies Feb.18
Handout: Chapter 7 of Cabral, Introduction to Industrial Organization, 2000.
**Reference: Tirole, The Theory of Industrial Organization, 1988.
Mixed strategy equilibrium March 4
Handout: Chapter 4.8 of Osborne
*Reading: Rubinstein (1991) "Comments on the Interpretation of Game Theory" Econometrica link
Dynamic games and backward induction March 4
Midterm exam (Take-home, 35 points) March 8-10 ?
Files: exam
Games in extensive-form March 11
Handout: Chapter 2.1.B-D of Gibbons
Reading: Chapter 15 of Watson
**Reference: Reny (1992) "Rationality in Extensive-Form Games" Journal of Economic Perspectives link
Applications of dynamic games March 11
Handout: Chapter 11 of Krugman and Obstfeld, International Economics, 8th edition, 2009.
*Handout: Chapter 16.1 of Osborne
Repeated games March 18
Handout: Chapter 23 of Watson
Reading: Kandori(2008) "Repeated Game" in The New Palgrave Dictionary of Economics, 2nd ed.
**Reference: Mailath and Samuelson, Repeated Games and Reputations, 2006. Amazon
Static games of incomplete information March 18
Handout: Chapter 27 of Watson
*Reading: Morris (1995) "The Common Prior Assumption in Economic Theory" Economics and Philosophy, 11: 227-253.
Applications of incomplete information games March 25
Handout: Chapter 3.2.B-3.3 of Gibbons
*Reading: Milgrom (2008) "What the Seller Won't Tell You: Persuasion and Disclosure in Markets" Journal of Economic Perspectives link
*Reading: McAfee and McMillan (1987) "Auctions and Bidding" Journal of Economic Literature link
**Reference: Krishna, Auction Theory, 2nd, 2009 Amazon
Behavioral game theory March 25
Handout: Chapter 13.5 and 13.6 of Bernheim and Whinston, Microeconomics, 2008.
Handout: Camerer (2008) "Behavioral Game Theory" in The New Palgrave Dictionary of Economics, 2nd ed.
Reading: Chapter 5 of Kreps
*Reading: Fehr and Schmidt (2006) "The Economics of Fairness, Reciprocity and Altruism – Experimental Evidence and New Theories" Chapter 8 of Handbook on the Economics of Giving, Reciprocity and Altruism link
*Reading: Camerer, Loewenstein and Prelec (2005) "Neuroeconomics: How Neuroscience Can Inform Economics" Journal of Economic Literature link
*Reference: Camerer, Behavioral Game Theory, 2003 Amazon
Introduction to market design March 29 (13:20 - 14:50)
Reading: McMillan, Reinventing the Bazaar: A Natural History of Markets, 2002.
*Reading: Roth (2002) "The Economist as Engineer: Game Theory, Experimentation, and Computation as Tools for Design Economics" Econometrica link
*Reading: Roth (2008) "What Have We Learned from Market Design?" Economic Journal link
*Reading: "Scientific Background: Stable Allocations and the Practice of Market Design" (by Nobel Prize Committee) link
Blog: Market Design by Al Roth link
**Reference: Roth and Sotomayor, Two-sided Matching, 1990 Amazon
Final exam (120 minutes, 65 points) March 29 (10:00 - 12:00)
Files: exam
*: Advanced materials
4. Grading
Course grade will be determined by combining grades on a midterm exam (50%) and a final exam (50%). There is NO take-home assignment. You can download the past exams below.
2013: Midterm; Final
2012: Midterm; Final
2011: Midterm; Final
2010: Midterm; Final
2009: Midterm; Midterm2; Final
2008: Midterm; Final
5. Textbooks
There is NO official textbook for the class. While lecture notes are the main material for the class, the books listed below might be useful if you need supplementary readings.
The following introductory textbooks contain full of intuitive explanations:
Avinash Dixit, Susan Skeath, and David Reiley, Games of Strategy, 3rd, 2009
Joel Watson, Strategy, 3rd, 2013
If you want to understand game theory in more lucid way, the next two books are recommended. The first one is concise and quite popular, while the second came out recently is more accessible and comprehensive.
Robert Gibbons, Game Theory for Applied Economists, 1992
Steven Tadelis, Game Theory: An Introduction, 2012
Those of you interested in pursuing the subject further may consult the following advanced and authoritative sources (all of them are Ph.D. level).
Drew Fudenberg and Jean Tirole, Game Theory, 1991
Martin Osborne and Ariel Rubinstein, A Course in Game Theory, 1994
(You can download it for free from here)
The following books contain many examples of game theory in action, both in business and in everyday life. The last one also serves an introduction to market design.
Adam Brandenburger and Barry Nalebuff, Co-Opetition, 1996
Avinash Dixit and Barry Nalebuff, The Art of Strategically, 2008
Preston McAfee, Competitive Solutions, 2002
John McMillan, Games, Strategies, and Managers, 1992
John McMillan, Reinventing the Bazaar, 2002
Finally, the following textbook provides a lively introduction to the game-theoretic perspective on economic development.
Bruce Wydick, Games in Economic Development, 2007
6. List of Reading Papers
Lec2: Myerson (1999) "Nash Equilibrium and the History of Economic Theory" Journal of Economic Literature link
Lec3: Gibbons (1997) "An Introduction to Applicable Game Theory" Journal of Economic Perspectives link
Lec3: Binmore (1987) "Modeling Rational Players I" Economics and Philosophy, 3: 179-214.
Lec3: Brandenburger (1992) "Knowledge and Equilibrium in Games" Journal of Economic Perspectives link
Lec5: Rubinstein (1991) "Comments on the Interpretation of Game Theory" Econometrica link
Lec6: Schwalbe and Walker (2001) "Zermelo and the Early History of Game Theory" Games and Economic Behavior link
Lec8: Reny (1992) "Rationality in Extensive-Form Games" Journal of Economic Perspectives link
Lec10: Kandori(2008) "Repeated Game" in The New Palgrave Dictionary of Economics, 2nd ed.
Lec11: Morris (1995) "The Common Prior Assumption in Economic Theory" Economics and Philosophy, 11: 227-253.
Lec12: Milgrom (2008) "What the Seller Won't Tell You: Persuasion and Disclosure in Markets" Journal of Economic Perspectives link
Lec12: McAfee and McMillan (1987) "Auctions and Bidding" Journal of Economic Literature link
Lec13: Camerer (2008) "Behavioral Game Theory" in The New Palgrave Dictionary of Economics, 2nd ed.
Lec13: Fehr and Schmidt (2006) "The Economics of Fairness, Reciprocity and Altruism – Experimental Evidence and New Theories" Chapter 8 of Handbook on the Economics of Giving, Reciprocity and Altruism link
Lec13: Camerer, Loewenstein and Prelec (2005) "Neuroeconomics: How Neuroscience Can Inform Economics" Journal of Economic Literature link
Lec14: Roth (2002) "The Economist as Engineer: Game Theory, Experimentation, and Computation as Tools for Design Economics" Econometrica link
Lec14: Roth (2008) "What Have We Learned from Market Design?" Economic Journal link
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