14.123 | Spring 2015 | Graduate

Microeconomic Theory III


Course Meeting Times

Lectures: 2 sessions / week, 1.5 hours / session

Recitations: 1 session / week, 1.5 hours / session


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.


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]


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

Course Info

As Taught In
Spring 2015
Learning Resource Types
Problem Sets with Solutions
Exams with Solutions
Lecture Notes