Last up-dated: March 26, 2009
0. Important Announcement
Solution of the final exam is uploaded. Graded answer sheets with printed comments and solutions will be returned to your mail-box very soon. March 26
There will be a final exam on March 25 from 9:15 to 10:45.
Your midterms have been graded and will be sent back to your mail-box on Monday (March 16).
Midterm solution is uploaded. Graded answer sheets will be returned to your mail-box very soon.
There will be a midterm exam on March 4 from 9:15 to10:15.
There will be a make-up class on March 20 (Friday) from 10:00 to13:00.
1. Course Description syllabus
This is an introductory course in game theory, which will provide you with mathematical tools for analyzing strategically interdependent situations, i.e., the situation in which 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 the Bayesian equilibrium. To illustrate the analytical value of these tools, we will cover a variety of applications, e.g., international relations, 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.
2. Course Outline
Introduction and motivation
Static games and Nash equilibrium
Handout: Chapter 2 of Wydick
Why and how is Nash equilibrium reached?
Advanced reading: Binmore (1987)
Rationality and knowledge
Handout: Gibbons (1997)
Advanced reading: Brandenburger (1992)
Advanced reading: Samuelson (2004)
Applications of static games
Handout: Chapter 7 of Cabral
Advanced reading: Chapter 1.2 of Gibbons
Mixed strategy equilibrium
Handout: Last year's midterm exam solution
Advanced reading: Chapter 1.3 of Gibbons
Midterm exam 60 minutes, 80 points
Files: exam solution comment
Dynamic games and backward induction
Handout: Chapter 4.8 of Osborne
Handout: Chapter 15 of Watson
Games in extensive-form
Handout: Pages 268-273 ("Imperfect Competition and Strategic Trade Policy") of Paul Krugman and Maurice Obstfeld, International Economics, 8th edition, 2009.
Advanced reading: Fudenberg and Tirole (1984)
Advanced reading: Reny (1992)
Applications of dynamic games
Handout: Chapter 6 of Nicholson and Snyder [1]
Repeated games
Handout: Chapter 23 of Joel Watson
Advanced reading: Chapter 2.3 of Robert Gibbons
Static games of incomplete information
Handout: Chapter 8 (p.268-) of Walter Nicholson and Christopher Snyder [2]
Advanced reading: Chapter 3.3 of Robert Gibbons
Applications of incomplete information games
Handout: Chapter 3.2.C of Robert Gibbons
Handout: Chapter 27 of Joel Watson
Advanced reading: Farrell and Rabin (1996)
Advanced reading: Klemperer (2003)
Review session
Advanced reading: Chapter 4.2 and 4.3.A of Robert Gibbons
Final exam 90 minutes, 120 points
Files: exam solution comment
3. Textbooks
There is NO official textbook for the class. While lecture notes will be the main material for the class, the following textbooks are recommended for those who need supplementary readings.
Robert Gibbons, Game Theory for Applied Economists, 1992
Joel Watson, Strategy, 2nd edition, 2008
A useful text at roughly the same level as Gibbons, but contains variety of example, is:
Martin Osborne, An Introduction to Game Theory, 2004
For a quick guide to game theory, you may find the following useful.
Ken Binmore, Game Theory: A Very Short Introduction, 2007
Those of you interested in pursuing the subject further may consult with following advanced and authoritative sources.
Drew Fudenberg and Jean Tirole, Game Theory, 1991
Roger Myerson, Game Theory, 1991
Martin Osborne and Ariel Rubinstein, A Course in Game Theory, 1994
The following books contain many examples of game theory in action, both in business and in everyday life.
Barry Nalebuff and Avinash Dixit, The Art of Strategy, 2008
The old version with different title (Thinking Strategically, 1991) is also recommended.
Preston McAfee, Competitive Solutions, 2002
John McMillan, Games, Strategies, and Managers, 1992
The following textbooks provide a lively introduction to the game-theoretic perspectives on industrial organization and economic development, which may especially attract your interests.
Luis Cabral, Introduction to Industrial Organization, 2000
Bruce Wydick, Games in Economic Development, 2007
A chapter on game theory in microeconomics textbooks would be helpful. The following introductory and intermediate level books written by the same authors are recommended.
Walter Nicholson and Christopher Snyder [1], Intermediate Microeconomics and Its Application, 10th edition, 2005
Walter Nicholson and Christopher Snyder [2], Microeconomic Theory: Basic Principles and Extensions, 10th edition, 2007
4. Related Materials
Ken Binmore (1987), "Modeling Rational Players I," Economics and Philosophy, 3: 179-214.
Adam Brandenburger (1992), "Knowledge and Equilibrium in Games," Journal of Economic Perspectives, 6: 83-101. JSTOR
Joseph Farrell and Matthew Rabin (1996), "Cheap Talk," Journal of Economic Perspectives, 10: 103-118. JSTOR
Drew Fudenberg and Jean Tirole (1984), "The Fat-Cat Effect, the Puppy-Dog Ploy, and the Lean and Hungry Look," American Economic Review (Papers and Proceedings), 74: 361-366. JSTOR
Robert Gibbons (1997), "An Introduction to Applicable Game Theory," Journal of Economic Perspectives, 11: 127-149. JSTOR
Paul Klemperer (2003), "Why Every Economist Should Learn Some Auction Theory," Chapter 2 in Advances in Economics and Econometrics, Volume 1, edited by Dewatripont, Hansen, and Turnovsky. Link to the final draft
Philip Reny (1992), "Rationality in Extensive-Form Games," Journal of Economic Perspectives, 4: 103-118. JSTOR
Larry Samuelson (2004), "Modeling Knowledge in Economic Analysis," Journal of Economic Literature, 42: 367-403. JSTOR
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