Game Theory and Economic Applications ECON 484 - B1 Winter 2016
Instructor: David Brown, Tory 9-24, [email protected].
Office Hours: T & TR 12:30 - 1:30 PM or by appointment.
Course Time: T & TR 11:00 - 12:20 PM Course Location: T B 65
Course Description:
Standard economic theory assumes that firms or consumers are sufficiently small such that they have no impact on the world or market they operate in. For example, it is often assumed that firms 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 firms, the actions of one firm can have dramatic effects on the behavior and profits 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 affects the well-being of other players and hence, its actions affect 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.
Course Objectives:
The objective of this course is to further your understanding of strategic behavior, incentives, and economic theory and its applications to the real world. In particular, we relax a wide array of the assumptions made in prior courses. The course expands your knowledge on how to create formal economic models to approximate real world behavior. Further, you should gain critical thinking skills and a deeper understanding of economic and social problems in practice.
Required Textbook: Steven Tadelis,Game Theory: An Introduction, Princeton University Press, 2013 (ISBN: 978-0691129088).
Note: I will cover concepts that are not in the textbook. The textbook should be viewed as a complement to the lectures, not a substitute. You are responsible for the material covered both in the textbook and the in-class lectures. Therefore, class attendance is very important to do well in this course. If you have difficulty understanding the material, please come see me in my office hours or schedule an appointment.
Additional Resources*:
(1) Martin Osborne, An Introduction to Game Theory, Oxford University Press (2003).
(2) Joseph Harrington, Games, Strategies, and Decision Making, Worth Publishers (2008) (3) Drew Fudenberg and Jean Tirole, Game Theory, The MIT Press (1991).
* Note: These books are not required for this course. They may be useful references for supple- mentary material.
Prerequisites:
ECON 384 (Intermediate Micro II), ECON 299 (Quantitative Methods), and MATH 113 (Cal- culus I). The course will be taught under the assumption that you are familiar with the basic microeconomic theories of the firm, consumer choice, and competitive market equilibrium.
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 (introductory) calculus to do well.
Course Website:
Course information including the course outline, assignments, handouts, and grades will be posted on the eClass Moodle system. If you have questions about how to use the website, contact the IT resources, please do not contact me.
Problem Sets:
Several Problem Sets will be assigned throughout the semester. They will contain a mix of problems from the book and problems I post on the course website. These problem sets are collected at the beginning of the class period. Late problem sets will not be accepted for any reason.
Grade Policy:
Your course grade will be based on the Problem Sets, a Midterm, and a cumulative Final Exam. The Problem Sets are worth 30%. The Midterm and Final Exams are worth 30% and 40%, respectively. The Final Exam will be cumulative. Although more weight will generally be given to the material covered after the Midterm.
The questions on the exams will be short answer questions and will involve applying the basic tools of economic and game theoretic analysis discussed in class. The exams may require the manipulation of diagrams and formal model derivations. The explanation in words of the economic intuition underlying an answer will be an important part of the exams. There will be no multiple choice questions on the exams.
Exam/Assignments Percentage Due Dates
Problem Set 1 10% February 11
Midterm Exam 30% February 25 (In-Class)
Problem Set 2 10% March 17
Problem Set 3 10% April 7
Final Exam 40% TBD
Note: The due dates on the problem sets are subject to change.
There is no pre-set distribution of grades for this course. The grade distribution will generally fit the target distribution for a 300-level course, but the distribution of individual classes may vary.
Both absolute performance and relative performance to the rest of the class will be considered in assigning letter grades.
Attendance:
While there is no explicit attendance policy, I strongly urge you to attend every class meeting as there will be questions on the Homeworks and Exams 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.
Policies:
Policy about course outlines can be found in 23.4(2) of the University Calendar. (GFC 29 SEP 2003)
• Late Assignments and Missed Midterms: There will be no make-up midterm exam or extra credit essays. If you are not able to take your midterm exam because of a legitimate reason, the weight of the midterm exam will be transferred to the final exam. If you miss the exam because of a medical reason, please submit the Medical Declaration Form to the Faculty. Late problem sets will not be accepted for any reason. If you will miss the final exam, you may apply to your Faculty for a deferred exam. Note that a deferred final exam will not be approved if a student, excluding the final exam, has completed less than half of the assigned work (Calendar, 23.5.6(2)).
• Academic Integrity: The University of Alberta is committed to the highest standards of academic integrity and honesty. Students are expected to be familiar with these standards regarding academic honesty and to uphold the policies of the University in this respect. Stu- dents are particularly urged to familiarize themselves with the provisions of the Code of Student Behaviour (online at www.ualberta.ca/secretariat/appeals.htm) and avoid any be- haviour which could potentially result in suspicions of cheating, plagiarism, misrepresentation of facts and/or participation in an offence. Academic dishonesty is a serious offence and can result in suspension or expulsion from the University. (GFC 29 SEP 2003). Policy about the course outlines can be found in 23.4(2) of the University Calendar. (GFC 29 SEP 2003).
• Learning Environment: The Faculty of Arts is committed to ensuring that all students, faculty and staff are able to work and study in an environment that is safe and free from discrimination and harassment. It does not tolerate behaviour that undermines that environ- ment. The department urges anyone who feels that this policy is being violated to (1) discuss the matter with the person whose behaviour is causing concern; or (2) if that discussion is un- satisfactory, or there is concern that direct discussion is inappropriate or threatening, discuss it with the Chair of the Department. For additional advice or assistance regarding this policy you may contact the student ombudservice: http://www.ombudservice.ualberta.ca/. Information about the University of Alberta Discrimination and Harassment Policy and Procedures can be found in the GFC Policy Manual, section 44 available at http://gfcpolicymanual.ualberta.ca/.
• Academic Accommodation: If you require academic accommodation due to a disability, please see me at the beginning of the semester to discuss your needs. For more information, please check the web site at http://www.ualberta.ca/ssds.
• Calculators: You may need a simple calculator for the exams. Programmable calculators will not be allowed.
Course Outline:
Topics and readings may be added or deleted as the term progresses. The order of the topics may also be changed.
Week Topic Readings
(1-2) Introduction CH 1 - 2
(2-3) Strategic Form and Rationality CH 3 - 4 (3-6) Pure and Mixed Nash Equilibrium CH 5 - 6
(6-9) Dynamic Games CH 7 - 9
(10 - 11) Repeated Games and Collusion CH 10
(11 - 14) Bayesian Games CH 12, 15, 16
Bargaining Models* CH 11
Auctions* CH 13
Mechanism Design* CH 14
*These topics will be covered if time permits.
