Economics 171

Introduction to Game Theory

Jack Erb
North Hall 3018
Office Hours: T 2:00-3:00, Th 11:00-12:00
Email: erb@econ.ucsb.edu
Class Webpage: http://econ.ucsb.edu/~erb/Econ171.htm
Course Meeting Time: T/Th 5:00 6:15; NH 1006
Course Objectives:
Game Theory is a misnomer for Multi-person Decision Theory, the analysis of situations in
which payoffs to agents depend on the behavior of other agents. It involves the analysis
of conflict, cooperation, and communication (both explicit and tacit). Game theory has
applications in several fields, such as economics, politics, law, biology, and computer science.
In this course, I will introduce the basic tools of game theoretic analysis, including both static
and dynamic games under complete and incomplete information. In the process, I will outline
some of the many applications of game theory, primarily in economics and political science.
Course Prerequisites:
Game theory has evolved as a branch of mathematics and, therefore, is quite technical. In
this course, emphasis will be placed on concepts and problem solving, and I will try to keep
the math to a minimum. However, students should be familiar with basic probability theory
(random numbers, expected values, etc.) and calculus (differentiation and integration). Math
3A and B and PStat 5E should be sufficient technical training, but more importantly, students
should be used to thinking mathematically. In addition, students should have completed
courses in intermediate microeconomic and macroeconomic theory.
Course Requirements:
Students will be graded on two midterms (20%), a group project (30%), and a final examination
(30%). The final exam will be comprehensive. The group project will be handed in on the final
day of class (3/11). Details for the group project will be given at a later date.
In addition, students may be occasionally asked to participate in in-class games/quizzes. Your
score on these quizzes will be extra credit (normalized to a maximum of 5%) and will count
toward your final grade AFTER the cutoff for letter grades has been determined.
Homework problems will be given, but will not be collected or graded. These assignments are
meant to give you practice solving problems on your own, as well as give you exposure to the
types of problems you may see on the midterms and final.
Course Textbook:
Game Theory for Applied Economists, by Robert Gibbons
Optional Text:
Strategy: An Introduction to Game Theory, by Joel Watson
Economics 171 Tentative Course Outline
Winter 2010
Week Date Topic Reading
1
1/5 T Introduction, Normal Form Games Gibbons 1.1.A
1/7 Th
Payoffs: Rational Choice Under Uncertainty,
Expected Utility Theory, Risk Aversion
2
1/12 T
Strategies, Iterated Elim. Of Dominated
Strategies, Nash Equilibrium
Gibbons 1.1.B-C
1/14 Th Cournot and Bertrand Duopoly Models Gibbons 1.2.A-B
3
1/19 T
Mixed Strategies and Existence of Nash
Equilibrium
Gibbons 1.3
1/21 Th Applications, Problems and Examples
4
1/26 T
Dynamic Games, Extensive Form
Representation, Backward Induction
Stackelberg Model
Gibbons 2.1.A-B, 2.4.A
1/28 Th
Games with Complete but Imperfect Info.,
Subgames, Subgame Perfect Nash Equil.
Gibbons 2.2.A, 2.4.B
5
2/2 T
Repeated Games and Infinitely Repeated
Games
Gibbons 2.3.A-C
2/4 Th Catch-up / Review Day
6
2/9 T Midterm 1
2/11 Th
Static Games of Incomplete Information,
Bayesian Games and Bayes Nash Equil.,
Normal Form
Gibbons 3.1.B-C
7
2/16 T
Examples and Applications: Cournot Under
Asymmetric Information, Auctions
Gibbons 3.1.A, 3.2.A-C
2/18 Th
Dynamic Games of Incomplete Info.
Perfect Bayes Equil.
Gibbons 4.1, 4.4
8
2/22 T Catch-up / Review Day
2/24 Th Midterm 2
9
3/2 T Signaling Games 1 Gibbons 4.2
3/4 Th Signaling Games 2
10
3/9 T TBD
3/11 Th TBD
Final
Exam
3/18 Th NH 1006; 7:30 10:30