Advanced Microeconomic Theory Fall 2013 Koc University, Alp Atakan Summary and Objectives.

. This class covers topics that fall under the heading of dynamic game theory. Although we will also study dynamic games with complete information, there will be disproportionate weight placed on dynamic games with asymmetric information and problems in which learning is paramount. More specically, we will study topics in bargaining, dynamic bargaining and search, repeated games, games with reputation concerns, experimentation and information aggregation. Readings and lectures are organized around a twofold goal: - an in-depth study of the papers that are considered central to each topic. - a description of the frontier of each topic with a focus on open questions. We will also cover some earlier topics which are well understood because (i) they belong to the standard intellectual tool kit of an economic theorist, (ii) more importantly, they pave the way for the later topics. Grading and Lecture Style. Lectures will cover the basic foundations of the models

followed by the discussion of many theoretical and applied papers written in that area. Depending on enrollment, each student will be required to present two or three papers during the semester, and each presentation will be an hour long. I will be presenting about one half of the total number of lectures. There will be no problem sets or exams, and grades will be based on the presentations, contribution during the class discussions, and a short paper due during the nals week of the semester. Topics, readings, and papers 1.1. Bargaining. Please read, Bargaining and Markets, Osborne and Rubinstein (1990),

Chapters 2 - 7 and Game Theory: Analysis of Conict, Myerson (1991), Chapter 8. i. Axiomatic bargaining and Nashs Solution: (1) The Bargaining Problem, Nash (1950)* (2) Two-person cooperative games, Nash (1953) ii. Alternating-oers bargaining (1) Perfect equilibrium in a bargaining model, Rubinstein (1982)* (2) Involuntary unemployment as a perfect equilibrium in a bargaining model, Shaked and Sutton (1984) (3) Compromise is Key to Repeated Bargaining, Dutta and Takahashi (2013) * 1

iii. Bargaining under incomplete information and reputations (1) Bargaining and Reputation Abreu and Gul (2000)* (2) On the role of outside options in bargaining with obstinate parties, Compte and Jehiel (2002) iv. Bargaining in markets with random or directed search (1) Equilibrium in a market with sequential bargaining, Rubinstein and Wolinsky (1985)* (2) Bargaining and Reputation in Search Markets, Atakan and Ekmekci (forthcoming)* (3) Pricing and Matching with Frictions, Burdett et al. (2001)* (4) Search-Theoretic Models of the Labor Market: A Survey, Rogerson et al. (2005) 1.2. Repeated games and reputations. Please read Repeated games and reputations: long-run relationships, Mailath and Samuelson (2006), Part IV, Chapters 15-18. i. The chair-store paradox and reputation in nitely repeated games ii. Reputation in innitely repeated games under perfect monitoring (1) Reputation and equilibrium selection in games with a patient player, Fudenberg and Levine (1989) (2) Public trust and government betrayal, Phelan (2006) (3) Reputation Acquisition in Debt Markets, Diamond (1989) iii. Imperfect monitoring, the product-choice game, and reputation (1) Maintaining a reputation when strategies are imperfectly observed, Fudenberg and Levine (1992) (2) Imperfect monitoring and impermanent reputations, Gossner et al. (2011) iv. Reputation in the long run (1) Imperfect monitoring and impermanent reputations, Cripps et al. (2004) (2) Reputation in Long-run Relationships, Atakan and Ekmekci (2012) (3) A two-sided reputation result with long-run players Atakan and Ekmekci (2013) (4) Bargaining, Reputation, and Equilibrium Selection in Repeated Games with Contracts, Abreu and Pearce (2007) 2

1.3. Value of information, experimentation, and information aggregation. i. Basics (1) Equivalent Comparisons of Experiments, Blackwell (1953) ii. Information aggregation in auctions

(1) The losers curse and information aggregation in common value auctions, Pesendorfer and Swink (1997) (2) Eciency and information aggregation in auctions, Pesendorfer and Swinkels (2000) (3) Auction, Actions, and the Failure of Information Aggregation, Atakan and Ekmekci (Forthcoming) iii. Information aggregation in elections (1) Voting Behavior and Information Aggregation in Elections With Private Information, Feddersen and Pesendorfer (1997) (2) The Swing Voters Curse, Feddersen and Pesendorfer (1996) References
Abreu, D. and F. Gul (2000): Bargaining and Reputation, Econometrica, 68, 85117. Abreu, D. and D. Pearce (2007): Bargaining, Reputation, and Equilibrium Selection in Repeated Games with Contracts, Econometrica, 75, 653710. Atakan, A. and M. Ekmekci (2012): Reputation in Long-run Relationships, Review of Economic Studies, 79, 451480. (2013): A two-sided reputation result with long-run players, Journal of Economic Theory, 148, 376392. (Forthcoming): Auction, Actions, and the Failure of Information Aggregation, American Economic Review. (forthcoming): Bargaining and Reputation in Search Markets, Review of Economic Studies. Blackwell, D. (1953): Equivalent Comparisons of Experiments, The Annals of Mathematical Statistics, 24, pp. 265272. Burdett, K., S. Shi, and R. Wright (2001): Pricing and Matching with Frictions, Journal of Political Economy, 109, 10601085. Compte, O. and P. Jehiel (2002): On the role of outside options in bargaining with obstinate parties, Econometrica, 70, 14771517. Cripps, M., G. Mailath, and L. Samuelson (2004): Imperfect monitoring and impermanent reputations, Econometrica, 72, 407432. Diamond, D. (1989): Reputation Acquisition in Debt Markets, The Journal of Political Economy, 97, 828862. Dutta, P. K. and S. Takahashi (2013): Compromise is Key to Repeated Bargaining, . Feddersen, T. and W. Pesendorfer (1997): Voting Behavior and Information Aggregation in Elections With Private Information, Econometrica, 65, 10291058.

Feddersen, T. J. and W. Pesendorfer (1996): The Swing Voters Curse, American Economic Review, 86, 408424. Fudenberg, D. and D. Levine (1989): Reputation and equilibrium selection in games with a patient player, Econometrica, 57, 759778. (1992): Maintaining a reputation when strategies are imperfectly observed, The Review of Economic Studies, 561579. Gossner, O., M. Ekmekci, and A. Wilson (2011): Imperfect monitoring and impermanent reputations, Journal of Economic Theory, forthcoming. Mailath, G. and L. Samuelson (2006): Repeated games and reputations: long-run relationships. Myerson, R. (1991): Game Theory: Analysis of Conict. Nash, J. (1950): The Bargaining Problem, Econometrica, 18, 155162. (1953): Two-person cooperative games, Econometrica, 21, 128140. Osborne, M. and A. Rubinstein (1990): Bargaining and Markets. Pesendorfer, W. and J. Swinkels (1997): The losers curse and information aggregation in common value auctions, Econometrica, 65, 12471281. (2000): Eciency and information aggregation in auctions, American Economic Review, 90, 499 525. Phelan, C. (2006): Public trust and government betrayal, Journal of Economic Theory, 130, 2743. Rogerson, R., R. Shimer, and R. Wright (2005): Search-Theoretic Models of the Labor Market: A Survey, Journal of Economic Literature, XLIII, 959988. Rubinstein, A. (1982): Perfect equilibrium in a bargaining model, Econometrica, 97109. Rubinstein, A. and A. Wolinsky (1985): Equilibrium in a market with sequential bargaining, Econometrica, 53, 11331150. Shaked, A. and J. Sutton (1984): Involuntary unemployment as a perfect equilibrium in a bargaining model, Econometrica, 52, 13511364.