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A list of topics by session can be found in the calendar below.
Description
This half-semester course discusses decision theory and topics in game theory. We present models of individual decision-making under certainty and uncertainty. Topics include preference orderings, expected utility, risk, stochastic dominance, supermodularity, monotone comparative statics, background risk, game theory, rationalizability, iterated strict dominance multi-stage games, sequential equilibrium, trembling-hand perfection, stability, signaling games, theory of auctions, global games, repeated games, and correlation.
Prerequisites
The prerequisites for this course are 14.121 Microeconomic Theory I and 14.122 Microeconomic Theory II, or permission of the instructor.
Textbooks
Required
[MWG] Mas-Collel, Andreu, Michael D. Whinston, and Jerry R. Green. Microeconomic Theory. New York, NY: Oxford University Press, 1995. ISBN: 9780195073409.
[FT] Fudenberg, Drew, and Jean Tirole. Game Theory. Cambridge, MA: MIT Press, 1991. ISBN: 9780262061414.
Supplementary
Rubinstein, Ariel. Lecture Notes in Microeconomic Theory: The Economic Agent. Princeton, NJ: Princeton University Press, 2006. ISBN: 9780691120317.
Osborne, Martin J., and Ariel Rubinstein. A Course in Game Theory. Cambridge, MA: MIT Press, 1994. ISBN: 9780262650403.
Grading
Grading criteria.
| ACTIVITIES |
PERCENTAGES |
| Problem sets (6) |
40% |
| Midterm exam |
60% |
Calendar
Course calendar.
| SES # |
TOPICS |
KEY DATES |
| 1-2 |
Refresher on preference orderings and utility representation
The expected utility hypothesis
Positive and normative interpretations
|
Problem set 1 out on Ses #1 |
| 3-4 |
Risk and risk attitudes
Stochastic dominance
Applications of expected utility in insurance and finance
|
Problem set 1 due and problem set 2 out on Ses #3 |
| 5 |
Supermodularity (supermodularity, log-supermodularity, and quasi-supermodularity) and monotone comparative statics
Background risk; calibrating risk aversion
|
Problem set 2 due and problem set 3 out |
| 6 |
Beyond expected utility |
|
| 7 |
Refresher on game theory; rationalizability and iterated strict dominance multi-stage games; iterated conditional dominance in bargaining |
Problem set 4 out |
| 8 |
Equilibrium refinements: sequential equilibrium, trembling-hand perfection, and stability |
Problem set 3 due |
| 9 |
Signaling games |
Problem set 4 due and problem set 5 out |
| 10 |
Positive theory of auctions |
|
| 11 |
Global games |
Problem set 5 due one day after Ses #11 and problem set 6 out |
| 12 |
Repeated games with perfect monitoring |
|
| 13 |
On the power of correlation
Review
|
Problem set 6 due and midterm exam taken one day after Ses #13 |