This course develops students’ understanding of fundamental concepts and frameworks in game theory, beginning with static games and concluding with reputation. It provides a solid foundation in the core principles and interpretations of game-theoretic concepts, which are essential tools for analyzing strategic interactions among agents. Students learn to model complex environments as games and to characterize their equilibria to generate reasonable predictions of firms, consumers and policy makers behavior. Applications include R&D decisions, market entry, product quality and pricing strategies among competing firms, optimal investment strategies under uncertainty, and supply contract negotiations between suppliers and retailers, among others.
Learning outcomes By the end of the course, students will be able to:
• Formulate strategic interactions in various economic and social settings using formal game-theoretic models.
• Distinguish between different types of games (static vs. dynamic, complete vs. incomplete information) and understand their structural features.
• Identify right equilibrium concept, such as Nash Equilibrium, Subgame Perfect Nash Equilibrium, Bayesian Perfect Nash Equilibrium, and Markov Perfect Equilibrium, to model behavior of agents in strategic settings.
• Analyze the equilibrium of games and predict equilibrium behavior of agents.
• Interpret equilibrium strategies and outcomes in the context of real-world applications, like modeling consumption decisions, firms’ competitive strategies in pricing, quality investments, bargaining input prices.
• Critically evaluate the assumptions and limitations of game-theoretic models and their implications for economic theory, applications and policy.
Assessment • Final Exam (85%): Closed-book and closed-notes exam assessing ability to use game theoretical concepts and frameworks to study economic trade-offs of agents, their equilibrium solutions, and economic interpretations.
• Problem Sets (15%): There will be 5 problem sets distributed throughout the course. One or two questions of each problem set will be graded at random.
Prerequisites. Students are expected to be familiar with the material covered in an intermediate microeconomics course (Mas-Colell, Whinston and Green (1995), and Varian, Intermediate Microeconomics (1999). As well as basic game theory concepts covered by Osborne & Rubinstein - A Course in Game Theory (Chapter 2: Nash Equilibrium, Chapter 3.1 & 3.2: Mixed Strategy Nash Equilibrium, Chapter 6.1 - 6.4: Extensive Form Games and Subgame Perfection)
Module structureWEEK 1
Topics:
• Static Games of Complete Information (, Lec1, M 1.1, 1.2, 2.4.1, 2.4.2, MWG 7, 8.A-8.C, FT 1.1,2.1)
• Nash Equilibrium (Lec2, M 2.1, 2.4.3, 4.1, 2.5, MWG 8.D-8.appx, FT 1.2,1.3)
• Static Oligopoly Games (Lec3, .C)
WEEK 2
Topics:
• Dynamic Games of Perfect Information (Lec4, M 1.3, 2.2, 2.4.4, 5.1, MWG 9.A, 9.B, FT 3.1-3.6)
• Subgame Perfection (Lec5, M 2.3, FT 4.1, 4.2)
WEEK 3
Topics:
• Repeated Games (Lec6, M 7.1.1, 7.1.2, 7.1.3, 7.4, MWG 12D, FT 4.3, 5.1-5.3.1)
• Markov Perfect Equilibrium (Lec7, M 8.1, FT 13.1, 13.2)
WEEK 4
Topics:
• Bayesian Games (Lec8, M 3.4, MWG 8.E, FT 6.1-6.5)
• Dynamic Bayesian Games and Introduction to Signaling (Lec12, M 5.1, 5.2, 5.3, 6.1, MWG 7.C, FT 8.2.1)
WEEK 5
Topics:
• Introduction to Repeated Games with Imperfect Monitoring (Lec9, FT 5.5)
• Incomplete Information and Reputation (Lec13, M 8.3, FT 9.2.1, 9.2.2)
Bibliography and further readingsMain References:
• (M) Mailath, G. (2018). Modeling Strategic Behavior. World Scientific Publishing Company.
pdf version can be found at the author’s page: https://web.sas.upenn.edu/gmailath/books/modeling-strategic-behavior/
• (MWG) A.Mas-Colell, M.Whinston and J. Green Microeconomic Theory (1995)
• (FT) D. Fudenberg and J. Tirole Game Theory (1991)
Supplementary Reading:
• Gibbons, Robert. Game Theory for Applied Economists. Princeton University Press, 1992.
• M. Osborne and A. Rubinstein Game Theory (1994)