### Course Meeting Times

Lectures: 2 sessions / week, 1.5 hours / session

Recitations: 1 session / week, 1.5 hours / session

### Prerequisites

*14.121 Microeconomic Theory I*, *14.122Microeconomic Theory II.* This course assumes knowledge of Game Theory at the level of *14.122 Microeconomic Theory II* and knowledge of consumer theory and optimization.

### Texts

The instructor’s notes are used as the main text for the course. However, the following textbooks are also useful.

- Savage, Leonard J.
*The Foundations of Statistics*. Dover Publications, 1972. ISBN: 9780486623498. [Preview with Google Books] - Mas-Colell, Andreu, Michael D. Whinston, and Jerry R. Green.
*Microeconomic Theory*. Oxford University Press, 1995. ISBN: 9780195073409. - Kreps, David M.
*Microeconomic Foundations I: Choice and Competitive Markets*. Princeton University Press, 2012. ISBN: 9780691155838. [Preview with Google Books]

### Grading

The grading will be based on five problem sets (40%) and a final exam (60%). In each problem set, there will be one problem that is to be graded, and several other problems that are not for a grade. I encourage you to work on the problem sets together, but you need to write your solution to the problem for a grade by yourself. Although the other problems are not for a grade, I encourage you to work on them and submit your solutions for feedback.

See the Assignments section

### Topics Outline

- Basics (Choice, Preference, Utility, and Representation)
- Decision under Risk (Von Neumann and Morgenstern Representation)
- Topics on Risk: Risk-aversion, Stochastic Dominance
- Decision under Uncertainty (Savage’s Subjective Expected Utility Theory)
- Critiques of Expected Utility Theory
- Prospect Theory
- Costly Contemplation Model—Rational Inattention
- Preference for Flexibility, Temptation & Self Control
- Hyperbolic Discounting with Application to Bargaining and Investment
- Other Applications with Non-traditional Assumptions