Game Theory (2011)

Last up-dated: April 24, 2011

1. Important Announcement

• • The course grade is indicated to your answer sheet as well. I gave A if your total score is 75 or above, B if 55-74, and C if below 55. Many thanks for taking my course!April 24

  • I finished grading the final exam and assignment; average/ maximum / minimum scores (out of 50) are 35.33 / 44/ 17. Your answer sheets will be returned to your mail-box tomorrow. April 24

  • Here is the file of homework assignment for those who didn't take the final exam. April 4

• For those who cannot take the final exam, I will provide a complementary Homework Assignment on April 4 (Mon), whose deadline is April 18 (Mon). March 29

• I finished grading the midterm exam; average / maximum / minimum scores (out of 50) are 34.97 / 48 / 12 . Your answer sheets will be returned to your mail-box tomorrow. March 29

• Slides for lectures 9, 10, and 11 were just uploaded. March 18

• We have the FINAL exam on April 3 (Sun) from 10:40-12:10. March 9

• We have the Midterm exam on March 9 (Wed) from 9:05-10:30 at Room 5F. February 23

• There will be a make-up class on March 16, 13:20-14:50. February 16

• There will be NO class on March 2. We will discuss the schedule of make-up classes next week. February 10

• We have the first lecture on February 9th, from 9:00 at room 5J. February 8

2. 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.

3. Course Outline

1. Introduction and motivation Feb. 9

   • Website: "Game Theory" by Wikipedia link

2. Static games and Nash equilibrium Feb. 9

   • Handout: Chapter 6 of Nicholson and Snyder [1]

3. Why and how is Nash equilibrium reached? Feb. 16

   • Homework:Questions 6.1 and 6.2 of Nicholson and Snyder [1].

4. Applications of static games Feb. 16

   • Advanced reading: Chapter 1.2 of Gibbons

5. Mixed strategy equilibrium Feb. 23

   • Handout: Chapter 7 of Luis Cabral, Introduction to Industrial Organization, 2000.

   • Advanced reading: Chapter 1.3 of Gibbons

6. Dynamic games and backward induction Feb. 23

   • Handout: Chapter 4.8 of Osborne

7. Midterm exam Mar. 9 90 minutes, 50 points

   • Files: exam solution

8. Games in extensive-form Mar. 9

   • Handout: Chapter 15 of Watson

9. Applications of dynamic games Mar. 16

   • Handout: Pages 268-273 ("Imperfect Competition and Strategic Trade Policy") of Paul Krugman and Maurice Obstfeld, International Economics, 8th edition, 2009.

10. Bargaining and repeated games Mar. 16

    • Handout: Chapter 16.1 of Osborne

11. Infinitely repeated games Mar. 16

    • Handout: Chapter 23 of Watson

    • Advanced reading: Chapter 2.3 of Gibbons

12. Static games of incomplete information Mar.23

    • Handout: Chapter 27 of Watson

    • Advanced reading: Chapter 3.3 of Gibbons

13. Applications of incomplete information games Mar. 23

    • Handout: Chapter 3.2.C of Gibbons

14. Behavioral game theory Mar. 30

    • Handout: Camerer (2008) "Behavioral Game Theory," in The New Palgrave Dictionary of Economics, 2nd ed.

    • Handout: Chapter 13.5 and 13.6 of Bernheim and Whinston, Microeconomics, 2008.

    • Advanced reading: Camerer and Fehr (2006) "When Does 'Economic Man' Dominate Social Behavior?" Science, 311: 47-52.

15. Review session Mar. 30

16. Final exam Apr. 3 90 minutes, 50 points

    • Files: exam solution

    • Files: assignment

4. Textbooks

There is NO official textbook for the class. While lecture notes (slides) 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

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 recent textbook provides a lively introduction to the game-theoretic perspectives on economic development, which may especially attract your interests.

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, 11th edition, 2009

Walter Nicholson and Christopher Snyder [2], Microeconomic Theory: Basic Principles and Extensions, 10th edition, 2007

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