Game theory is the mathematical study of strategic interaction between rational decision makers. It provides a unified framework for the study of conflict and cooperation among people, companies, countries, and other organizations. Many economic, social, and political situations may be modeled as games in which each participant chooses between several strategies and obtains payoffs that depend not only on his or her own strategy but, importantly, also on the strategic choices of others. Players need to understand the objectives and interests of their opponents in order to correctly anticipate their actions and respond optimally. The theory becomes complicated when players take multiple actions over time without perfectly observing others’ past actions (e.g., repeated interaction between firms competing in a market), when players do not have access to the same information and try to infer what they do not know from the behavior of their opponents (e.g., auctions or government procurement), or when players have incentives to conceal their private information (e.g., negotiations). The aim of the theory is not only to explain observed behavior and outcomes, but also to understand key incentives and make predictions that inform private parties on the selection of optimal strategies and guide policymakers in the design and regulation of new markets and institutions.
This short course provides an introduction to the fundamental modeling tools of game theory. It covers static and dynamic games, with either complete or incomplete information, and the underlying solution concepts ranging from Nash to sequential equilibrium. The main focus is on the breadth of applications of game theory and the versatility of its models. The course applies game theoretic concepts to shed light on topics such as advertising, market competition, cooperation in repeated games, political campaigns, bargaining power, optimal bidding in auctions, signaling in the job market, penalty kicks in soccer, backward induction in chess, and adverse selection in dating.
BIBLIOGRAPHY (in order of difficulty)
1. The Art of Strategy: A Game Theorist's Guide to Success in Business and Life by Avinash Dixit and Barry Nalebuff, 2010
2. Game Theory for Applied Economists by Robert Gibbons, 1992
3. Strategy: An Introduction to Game Theory by Joel Watson, 2013
4. Game Theory: An Introduction by Steven Tadelis, 2013
5. Game Theory by Drew Fudenberg and Jean Tirole, 1991
REGISTRATION FORM.
