Game theory is a set of tools for studying situations in which decision-makers (like consumers, firms, politicians, and governments) interact. This course provides an introduction to game theory, with a strong emphasis on applications in economics. The objective of the course is to give students an understanding of the core concepts of game theory and how to use them to understand economic, social, and political phenomena.
Game theory is an analytical subject, and an ability to follow logical arguments—including some that are complex—is required to follow the material. The only way to absorb analytical material is to work through problems. I will assign weekly problem sets; to keep up with the course it is essential that you complete them.
I will cover the following topics.
- Strategic games; Nash equilibrium.
- Cournot's and Bertrand's models of duopoly
- Hotelling's model of electoral competition; the citizen-candidate model
- Mixed strategy Nash equilibrium, with applications
- Dominated strategies; iterated elimination of dominated strategies and common knowledge of rationality
- Voting, the swing voter's curse, and juries
- Strategic games with imperfect information; auctions
- Extensive games; subgame perfect equilibrium
- Ultimatum game, holdup game
- Repeated games; collusion in repeated duopoly
- The core, matching, and the deferred acceptance algorithm
BooksI know of no book that fits the course perfectly. I will refer you a lot to my book
An introduction to game theory (Oxford University Press, New York, 2003)although the level of some parts of that book is a bit higher than the level of the course. Another book that covers some, but not all of the topics in the course, at approximately the same level, is
R. Gibbons, Game theory for applied economists (Princeton University Press, 1992).
PrerequisitesThis course has prerequisites; for details, see its Arts and Science calendar entry. Please note the strict departmental policy on prerequisites.
Course componentsThe course has three main components.
I will use fairly detailed slides, which I will post before each class. See the Schedule page for details.
Use of electronic devices in class: I encourage you to use take notes on an electronic device. However, during class please do not use an electronic device for any purpose unconnected with the class. In particular, do not read email, send or read text messages, or browse the web during class. If you want to engage in these activities, please leave the classroom to do so.
- The tutorials are an essential part of the class. In them, the TA will guide you in solving some problems related to the material in the previous class. She will not give you a solution, but will rather induce you to create a solution. The problems for each Tutorial will be posted on the Schedule page shortly after the class on the previous day. You do not need to look at them before the Tutorial, but you should be prepared to participate actively in the Tutorial. I will post full solutions to the problems shortly after the tutorial.
- Problem Sets
- The Problem Sets are another essential part of the class. As for any analytical subject, the only way to learn the material in the course is to solve a lot of problems. I will assign a Problem Set each week. (I will post it on the Schedule page shortly after each class.) Your answers to these problems will not contribute directly to your grade (they will not be marked), but they will definitely contribute indirectly: you will not be able to do well in the course unless you do the problems.
- ECO316H and ECO326H are exclusions for each other, which means you cannot take both courses towards your degree.
- ECO316H cannot be counted towards any program that requires ECO326H. In other words, if you need to take ECO326H for your program, you cannot take ECO316H.
- The Department of Economics does not remove students from courses that are exclusions. However, when the time comes to graduate and courses are counted, the rules are strictly enforced, and exclusions do not count toward a degree or program. You are expected to comply with the rules of the calendar when you choose your courses.
ECO316 and ECO326ECO326 (Advanced Microeconomic Theory) also covers game theory. It is pitched at a somewhat higher level than this course; its approach is more rigorous. It emphasizes formal concepts, using applications as illustrations, whereas this course presents formal models mainly as a means to study applications. As a consequence, ECO326 is the preparation I recommend if you plan to pursue a theoretically-oriented Masters degree, and particularly if you want ultimately to pursue research in economics. However, a very strong performance in this course will also serve well for admission to most Masters programs.
Whether you take this course or ECO326, you should bear in mind that you can take only one of these courses, NOT both.