Teaching Assistant: Mr. Abdullah Shamim, E-mail: email@example.com
Lectures: Tuesday and Thursday, 2 - 3.20 PM, Clements 126.
This is an introductory course on non-cooperative game theory and its application to selected areas of economics. Game theory deals with multi person decision making when every individual cares about how others choose to act and therefore, each individual's behavior is strategic in the sense that it takes into account decisions made by other individuals and the fact that others may also behave in a similarly strategic fashion. Non-cooperative game theory specifically addresses a class of such multi person decision problems where the individual objectives may, in principle, be in "conflict."
In the last three decades, non-cooperative game theory has been applied very extensively in economics and several other social sciences (such as political science). It is the primary tool used to analyze market competition between small numbers of big firms (oligopolies), corporate decision making, interaction between buyers and sellers in auctions, behavior of parties involved in bargaining (such as labor unions and management of corporate firms), strategic interaction of governments in the determination of international trade policy, interaction over time between macroeconomic policy makers and economic agents, lobbying, competitive extraction of natural resources and so on. Indeed, it is impossible to understand and analyze theoretical models in most areas of modern economics without some basic knowledge of game theory.
This course aims to equip students with the foundations of game theoretic analysis and show how they can be applied to obtain insights in concrete economic problems. While most of the applications will be drawn from industrial organizations, the course will also cover problems from other areas of economics.
List of Topics
* Static Games of Complete Information: Normal form games and Nash Equilibrium; Applications to Cournot and Bertrand oligopoly, Tragedy of the Commons, Introduction to Mixed Strategy. [Textbook: Chapter 1: Sections 1.1, 1.2 and 1.3.A]
* Dynamic Games of Complete Information: Backward Induction, Applications to Stackelberg Duopoly & Sequential Bargaining; Two Stage games of Imperfect Information, Subgame Perfection, Applications to Bank Runs, International Tariff Competition; Extensive form representations. Repeated Games: Finitely and Infinitely Repeated Games; Applications to Collusion in Oligopoly, Efficiency Wages, Time Consistent Monetary Policy. [Textbook: Chapter 2: Sections 2.1, 2.2, 2.3 and 2.4]
* Static Game of Incomplete Information: Bayes Nash Equilibrium; Application to Auctions. [Textbook: Chapter 3: Sections 3.1, 3.2.B]
* Dynamic Games of Incomplete Information: Perfect Bayesian Equilibrium and Signaling Games. [Textbook: Chapter 4: Sections 4.1 and 4.2]
Expected Background: The course will require familiarity with basic algebra, calculus and probability theory.
PROBLEM SET 1 (Due September 6, Tuesday, In Class)
PROBLEM SET 2 (Due September 15, Thursday, In Class)