Game Theory and Applications ECO 4400 Summer B 2012

Instructor: David Brown, Matherly Hall 340, browndp2@u.edu. Oce Hours: M & W 8:30-10:30 AM or by appointment. Course Time: MWF (12:30 - 1:45 PM) and T & TR (11:00 - 1:45 PM) Course Location: Stuzin Hall 102 Course Description: Standard economic theory assumes that rms or consumers are suciently small such that they have no impact on the world or market they operate in. For example, it is often assumed that rms and consumers behave as price takers. However, if these agents are large enough to have an impact on the market we are studying, this assumption fails. Many important economic issues deal with situations in which an agent is big enough that the decisions it makes impacts how the market operates. For example, in industries dominated by a few rms, the actions of one rm can have dramatic eects on the behavior and prots of its competitors. Similarly, the United States foreign policy decisions have dramatic impacts on the well-being and behavior of other countries. It is these situations that we will discuss and analyze in this course. In these strategically interdependent settings, a rational agent knows that its actions aects the well-being of other players and hence, its actions aect the actions taken by its competitors. This course will teach you how rational players solve such strategic interactions. This course covers the basics of non-cooperative game theory, as well as advanced topics such as Bayesian equilibrium, auctions, dynamic games, among others. The applications used in the course cover a wide array of disciplines ranging from economics, political science, psychology, and biology. Required Textbook: Joseph Harrington, Games, Strategies, and Decision Making, Worth Publishers (2008) (ISBN-13: 978-0-7167-6630-8) Additional Resources: (1) http://gametheory.net [Great resource with quizzes, tests, and lecture notes from game theory courses at other universities]. (2) Eric Rasmusen, Games and Information: An Introduction to Game Theory (2005) available online at www.rasmusen.org/GI/download.htm. (3) Martin Osborne, An Introduction to Game Theory, Oxford University Press (2003). Prerequisites: As stated in the course catalog, introductory microeconomics is the prerequisite for this course (ECO 2013). We will be drawing on this course, so you will need to know the vocabulary and mathematics of basic economics. Basic calculus (derivatives) will also be used. This course will use both math and conceptual explanations for many of the chapters, so you should have a grasp of logic, algebra, probability, and basic calculus (I will go over what you need to know) to do well. Course Website: Course information including syllabus and grades will be posted on the Sakai platform at https://lss.at.u.edu/. If you have technical problems accessing the site, use the tools on Sakai to request assistance. Do not contact me.

Homework: Homework will be given several times a week. The homework will not be graded. They are for your benet. It is strongly recommended that you do them because the quizzes and the nal exam will be based on them. The answers will be discussed in class and an answer key will be provided. Attendance: While there is no explict attendance policy, I strongly urge you to attend every class meeting as there will be questions on the quizzes and nal exam from the lectures. I will follow the organization of the book. However, there will be material covered in the class lectures that is not directly detailed in the book. You are responsible for all material covered in class, and all the chapters we cover from the text. Grade Policy and Scale: Your grade will be based on four in-class quizzes and a nal exam. I will drop the lowest quiz grade at the end of the semester. The in-class quizzes will be worth 60%. A cumulative nal exam will be worth 40%. The quizzes and nal exam will be given during the scheduled class time. The nal exam will be given Thursday August 9th from 11:00 AM - TBD. Since I drop the lowest quiz grade at the end of the semester, makeup quizzes will not be oered, no exceptions. You must be present in class when the quiz is given to take the quiz. Makeup exams will only be given to students with approved and well-documented illness, or family emergencies. I must be notied of the circumstances as soon as possible and provided with adequate documentation. The makeup exam will be dierent from the exam given in class and could be an entirely dierent format. Makeups must be taken no more than ve school days after the scheduled exam. The grading scale is as follows: 93-100 90-92.99 A A73-77.99 C 70-72.99 C68-69.99 D+ 60-67.99 D 0-59.99 E

88.0-89.99 B+ 83-87.99 80-82.99 78-79.99 B BC+

*These cutos are strict (i.e., no rounding, no exceptions). Calculator Policy: Only basic four function calculators may be used on the quizzes and nal exam. Academic Honesty: Academic dishonesty (including plagiarism and cheating on exams) will be referred to Student Conduct and Conict Resolution and will result in at least a 0 on the assignment and may result in a failing grade for the course. Even further penalties can be assessed by Student Conduct and Conict Resolution. Therefore, students are expected to be familiar with the honor code, which can be found at http://www.registrar.u.edu/moved.html.

Disability Accommodations: If you are a student with a disability and would like to request disability-related accommodations, you are encouraged to contact me and the Disability Resource Center as early in the semester as possible. The Disability Resource Center is located in 001 Building 0020 (Reid Hall). Their phone number is 352-392-8565, and their website can be found at http://www.dso.u.edu/drc/. Calendar: Date Quiz 1 Quiz 2 Quiz 3 Quiz 4 Friday July 13th Friday July 20th Friday July 27th Friday August 3rd Time 12:30 - 1:45 12:30 - 1:45 12:30 - 1:45 12:30 - 1:45 11:00 - TBD

Final Exam* Thursday August 9th

* The schedule of the Final Exam is tentative and is subject to change. Course Outline: A: Games with Full Information 1. Introduction What is game theory? Harrington: Chapter 1 2. Building a Model of Strategic Interaction Extensive and Strategic Form Games Harrington: Chapter 2 3. Eliminating the Impossible Strict and Weakly Dominated Strategies Iterative Deletion of Strictly Dominated Strategies Harrington: Chapter 3 4. Nash Equilibrium in Discrete Strategic Form Games Pure Strategy Nash Equilibrium Examples of PSNE Best Response Functions Equilibrium Selection Harrington: Chapters 4 & 5 5. Extensive Form Discrete Choice Games Subgame Perfect Nash Equilibrium Examples of SPNE Harrington: Chapter 8

6. Mixed Strategy Nash Equilibrium Decisions Under Uncertainty Examples of Mixed Strategies Harrington: Chapter 7 7. Nash Equilibria in Continuous Games Bertrand, Cournot, and Stackelberg Competition Harrington: Chapter 6 & Handouts B: Games with Imperfect Information 8. Extensive Form Discrete Choice Games Subgame Perfect Nash Equilibrium Commitment Game Harrington: Chapter 9 9. Bayesian Games Bayes-Nash Equilibrium Applications of Bayesian Games: Auctions and Voting Harrington: Chapter 10 10. Signaling Games* Perfect Bayes-Nash Equilibrium Examples of Signaling Games Harrington: Chapter 11 C: Repeated Interactions* 11. Innitely Repeated Games Harrington: Chapter 13 12. Innitely Repeated Collusive Games Harrington: Chapter 14 *These topics are tentative and will only be taught if time permits.