Game Theory

Course Number
ECON 159
About the Course

This course is an introduction to game theory and strategic thinking. Ideas such as dominance, backward induction, Nash equilibrium, evolutionary stability, commitment, credibility, asymmetric information, adverse selection, and signaling are discussed and applied to games played in class and to examples drawn from economics, politics, the movies, and elsewhere.

Course Structure
This Yale College course, taught on campus twice per week for 75 minutes, was recorded for Open Yale Courses in Fall 2007.

Syllabus

Professor
Ben Polak, Professor of Economics and Management
Description

This course is an introduction to game theory and strategic thinking. Ideas such as dominance, backward induction, Nash equilibrium, evolutionary stability, commitment, credibility, asymmetric information, adverse selection, and signaling are discussed and applied to games played in class and to examples drawn from economics, politics, the movies, and elsewhere.

Texts

A. Dixit and B. Nalebuff. Thinking Strategically, Norton 1991

J. Watson. Strategy: An Introduction to Game Theory, Norton 2002

P.K. Dutta. Strategies and Games: Theory And Practice, MIT 1999

Requirements

Who should take this course?
This course is an introduction to game theory. Introductory microeconomics (115 or equivalent) is required. Intermediate micro (150/2) is not required, but it is recommended. We will use calculus (mostly one variable) in this course. We will also refer to ideas like probability and expectation. Some may prefer to take the course next academic year once they have more background. Students who have already taken Econ 156b should not enroll in this class.

Course Aims and Methods.
Game theory is a way of thinking about strategic situations. One aim of the course is to teach you some strategic considerations to take into account making your choices. A second aim is to predict how other people or organizations behave when they are in strategic settings. We will see that these aims are closely related. We will learn new concepts, methods and terminology. A third aim is to apply these tools to settings from economics and from elsewhere. The course will emphasize examples. We will also play several games in class.

Outline and Reading.
Most of the reading for this course comes from the first ten chapters of Dutta or from the first two parts of Watson. There will be a reading packet for weeks 6-7. The readings are not compulsory, but they will help back up the class material.

Grading

Problem sets: 30%
Midterm examination: 30%
Final examination: 40%

Sessions

Lecture 1 Introduction: Five First Lessons
Lecture 2 Putting Yourselves into Other People's Shoes
Lecture 3 Iterative Deletion and the Median-Voter Theorem
Lecture 4 Best Responses in Soccer and Business Partnerships
Lecture 5 Nash Equilibrium: Bad Fashion and Bank Runs
Lecture 6 Nash Equilibrium: Dating and Cournot
Lecture 7 Nash Equilibrium: Shopping, Standing and Voting on a Line
Lecture 8 Nash Equilibrium: Location, Segregation and Randomization
Lecture 9 Mixed Strategies in Theory and Tennis
Lecture 10 Mixed Strategies in Baseball, Dating and Paying Your Taxes
Lecture 11 Evolutionary Stability: Cooperation, Mutation, and Equilibrium
Lecture 12 Evolutionary Stability: Social Convention, Aggression, and Cycles
Exam 1 Midterm Exam
Lecture 13 Sequential Games: Moral Hazard, Incentives, and Hungry Lions
Lecture 14 Backward Induction: Commitment, Spies, and First-Mover Advantages
Lecture 15 Backward Induction: Chess, Strategies, and Credible Threats
Lecture 16 Backward Induction: Reputation and Duels
Lecture 17 Backward Induction: Ultimatums and Bargaining
Lecture 18 Imperfect Information: Information Sets and Sub-Game Perfection
Lecture 19 Subgame Perfect Equilibrium: Matchmaking and Strategic Investments
Lecture 20 Subgame Perfect Equilibrium: Wars of Attrition
Lecture 21 Repeated Games: Cooperation vs. the End Game
Lecture 22 Repeated Games: Cheating, Punishment, and Outsourcing
Lecture 23 Asymmetric Information: Silence, Signaling and Suffering Education
Lecture 24 Asymmetric Information: Auctions and the Winner's Curse
Exam 2 Final Exam

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Course Books and Other Related Titles

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