Interdependencies and Strategic Behavior [ LECON2011 ]

Basic background in mathematics and microeconomics.

The course will present the basic theory of normal-form games and extensive-form games necessary to address the economic applications listed in the contents below.

The goal of the course is to introduce the student to the consequences of the fact that economic agents often behave strategically, taking into account the interdependency of other agents’ decisions on their own; the course will also study the outcome of economic interactions in competitive markets. To that end the student will be provided with the tools and methods of game theory necessary to address the issue.

Written exam.

Lectures and homeworks. Lecture notes will be distributed before each lecture.

1. Static Games. Best-response Behavior. Nash Equilibrium. Applications: Cournot Model of Duopoly, Bertrand Model of Duopoly.
2. Extensive-form games. Sequential rationality. Backwards induction. Subgame perfection. Applications: Sequential Bargaining. Repeated Games. Applications: Collusion between Cournot Duopolists.
3. Static Games of Incomplete Information. Bayesian Nash Equilibrium. Applications: Cournot Competition under Asymmetric Information. Applications: Auction Theory.
4. Extensive-form games with incomplete information. Perfect Bayesian Equilibrium. Signaling Games. Cheap Talk. Applications: Job-Market Signaling.
5. Interactions in markets. Competitive Markets and Social Efficiency. Externalities and Social Inefficiency. Market Games.