Classes: T.,Th. 9:00-10:20 AM at Robinson Hall 301.
Office hours: Th. 2:30-4pm at Robinson Hall 302B.

Contents: In the first part of this class we will review the basic equilibrium concepts for situations of strategic interaction, explore their applications and study their performance in explaining actual behavior. In the second part we will focus on the theory of dynamic games, specially repeated games and reputation. Depending on time and demand we may also cover the basics of evolutionary game theory.

Grading: Grades will depend on homeworks (15%), an essay (15%), a paper (15%) and two exams (55%).

Textbooks (choose the one you like the most):
Fudenberg, D. and Tirole, J. Game Theory. (FT)
Mas-Colell, A., Whinston, M.D. and Green, J.R. Microeconomic Theory. (MWG)
Myerson, R.B. Game Theory: analysis of conflict. (M)
Osborne, M.J. and Rubinstein, A. A Course in Game Theory. (OR)
For review of experimental economics:
Kagel, J.H. and A. Roth (1995). The Handbook of Experimental Economics (KR)
Camerer, C. (2003). Behavioral Game Theory: experiments in strategic interaction (C)
For the evolutionary part:
Fudenberg, D. and Levine, D.K. The Theory of Learning in Games. (FL)
Weibull, J.W. Evolutionary Game Theory. (W)

Part I: Basic equilibrium and solution concepts

1. For static games of complete information
1.1 Nash Equilibrium
FT 1.1-1.3
MWG 8.A and 8.D
M 3.2-3.4
OR 2.1-2.3, 3.1 and 3.2
Nash, J. "Equilibrium Points in n-Person Games," Proceedings of the National Academy of Sciences of the United States of America, Vol. 36, No. 1. (Jan. 15, 1950), pp. 48-49.
Myerson, R. "Nash Equilibrium and the History of Economic Theory", Journal of Economic Literature, 37(3), 1999.
Application: Oligopoly games
Cournot, A. 1838. Recherches sur les Principes Mathematiques de la Theorie des Richesses. Chapter VII.
Empirics: Palacios-Huerta, I. "Professionals Play Minimax", Review of Economic Studies, April 2003, vol. 70, no. 2, pp. 395-415.
Nagel, R., Bosch-Domench, A., Satorra, A. and García-Montalvo, J. "One, Two, (Three), Infinity: Newspaper and Lab Beauty-Contest Experiments," American Economic Review, December 2002, Vol 92 No.5, pp 1687-1701.
1.2 Dominated strategies and rationalizability
FT 2.1
MWG 8.B-C
M 2.5 and 3.1
OR 4
Bernheim, D. (1984). "Rationalizable Strategic Behavior," Econometrica 52(4).
1.3 Trembling-hand perfection, risk dominance, correlated equilibrium and quantal response equilibrium
FT 2.2 and 8.4.1
MWG 8.F
OR 3.3 and 12.5.1
McKelvey, Richard D. and Thomas R. Palfrey. 1995. “Quantal Response Equilibria for Normal Form Games.” Games and Economic Behavior. 10, 6-38.
1.4 Introduction ot experimental economics
C 1.
KR 1.I-1.III.B
Harrison, G. and J.A. List (2004). "Field Experiments," Journal of Economic Literature 42.

Class Notes

2. For dynamic games of complete information
2.1 Definition of game and strategies
FT 3.1-3.4.3
MWG 7.C.-E
M 2.1, 2.2 and 4.1
OR 6.1.1, 6.1.2, 6.3 and 6.4
2.2 Nash equilibrium, backward induction and subgame perfection
FT 3.4.4-3.6
MWG 9.A-B
M 4.2, 4.6 and 4.7
OR 6.1.3 and 6.2
2.3 Forward Induction
MWG 9.D
M 4.9
Application 1: Repeated oligopoly (introduction to infinitely repeated games and the principle of optimality).
FT 4.2-4.3
Application 2: Rubinstein Bargaining model.
FT 4.4
MWG 9 appendix A
M 8.7
OR 7
Empirics: Roth, A.E., Prasnikar, V., Okuno-Fujiwara, M. and Zamir, S. "Bargaining and Market Behavior in Jerusalem, Ljubljana, Pittsburgh, and Tokyo: An Experimental Study". American Economic Review 81(5), 1991.

Class Notes

Homework 1 (Due Feb. 20) Answer Key

3. For static games of incomplete information: Bayesian games and Bayesian Nash equilibrium
FT 6.1-6.5
MWG 8.E
M 3.9
OR 2.6
Application: Auctions
Vickrey, W., (1961), "Counterespeculation, Auctions, and Competitive Sealed Tenders." Journal of Finance, 16.
Riley, J.G. and Samuelson, W.F., (1982) "Optimal Auctions," American Economic Review, 71.
Experiment: Palfrey, T.R. and Rosenthal, H. (1994). "Repeated Play, Cooperation and Coordination: An Experimental Study," Review of Economic Studies, 61(3). (look at the one shot game results).

Class Notes (updated)

4. For dynamic games of incomplete information: Perfect Bayesian and sequential equilibrium
FT 8.1-8.3
MWG 9.C
M 4.3 and 4.4
OR 11 and 12
Application: Information cascades
Bikhchandani, S., Hirshleifer, D. and Welch, I. (1992). "A Theory of Fads, Fashion, Custom, and Cultural Change as Informational Cascades," Journal of Political Economy, 100(5).
Experiment: Information Cascades
Lisa R. Anderson; Charles A. Holt (1997). "Information Cascades in the Laboratory," American Economic Review, 87(5).

Class Notes

Homework 2 (Due ?) Answer key

Midterm (March 8)
Essay (Due March 20) For answer see Bagwell, K. (1995). ‘Commitment and Observability in Games,' Games and Economic Behavior 8, 271—280.

5. Infinitely Repeated Games
5.1 Games with perfect information
5.1.1 Folk theorem (and some on characterization)
FT 5.1.1-5.1.2
M 7.1-7.5
OR 8.1-8.9
Fudenberg, D. and Maskin, E.(1986). "The Folk Theorem in Repeated Games with Discounting or with Incomplete Information", Econometrica, 54(3). Class Notes
Class Notes
Application: Repeated games and Macroeconomics
Rotemberg, J.J. and Saloner, G. (1986). "A Supergame-Theoretic Model of Price Wars During Booms," American Economic Review, 76. Class Notes
Experiment: Dal Bó, P. (2005). "Cooperation under the shadow of the future: experimental evidence from infinitely repeated games," American Economic Review 95. Class Notes

5.1.2 Renegotiation-proofness
FT 5.4.3
van Damme, E. (1989). "Renegotiation-Proof Equilibria in Repeated Prisoners' Dilemma," Journal of Economic Theory, 47.
Class notes
5.1.3 Repeated games with long-run and short-run players
FT 5.3.1
Fudenberg, D., Kreps D.M. and Maskin, E. (1990). "Repeated Games with Long-run and Short-run Players," Review of Economic Studies, 57.
Class notes

5.2 Repeated games with imperfect information
5.2.1 Perfect public equilibria
FT 5.5-5.6
M 7.5
Green, E.J. and Porter, R.H. (1984). "Noncooperative Collusion Under Imperfect Price Competition," Econometrica, 52.
Abreu, D., Pearce, D. and Stachetti, E. (1990). "Toward a theory of discounted repeated games with imperfect monitoring," Econometrica, 58.
Fudenberg, D., Levine, D. and Maskin, E. (1994). "The Folk Theorem with Imperfect Information", Econometrica, 62(5).
Experiment: M. Aoyagi and G. Frechette (2004). "Cooperation in Repeated Games with Imperfect Monitoring," mimeo.
Class notes

5.2.2 Private monitoring and private strategies
Kandori, M. (2002) "Introduction to Repeated Games with Private Monitoring," Journal of Economic Theory, 102.
Ely, J. and J. Valimaki (2002) "A Robust Folk Theorem for the Prisoner's Dilemma," Journal of Economic Theory 102..
Kandori, M. and Obara, I. (2000) "Efficiency in Repeated Games Revisited: the Role of Private Strategies," mimeo.

5.3 Repeated games with changing partners
FT 5.3.3
M 7.8
Kandori, M. (1992). "Social Norms and Community Enforcement," Review of Economic Studies, 59(1).
Application: Repeated Games and Economic History
Greif, A. (1993)."Contract Enforceability and Economic Institutions in Early Trade- the Maghribi traders coalition", American Economic Review, 83.
Class notes

Homework 3 (Due ?) Answer key

6 Reputation
6.1 Games with one long-run player
FT 9.1-9.2
Kreps, D. and Wilson, R. (1982). "Reputation and Imperfect Information," Journal of Economic Theory, 50.
Fudenberg, D. and Levine, D.K. (1989) "Reputation and equilibrium selection in games with a patient player," Econometrica, 57.
Ely, J and J. Valimaki (2003) "Bad Reputation", Quarterly Journal of Economics 118.


6.2 Games with two long-run players
FT 9.3.1
M 7.6
Kreps, D., P. Milgrom, J. Roberts and B. Wilson (1982). "Rational Cooperation in the Finitely Repeated Prisoners' Dilemma," Journal of Economic Theory, 27.
Fudenberg, D. and Maskin, E. (1986) "The Folk Theorem in Repeated Games with Discounting or with Incomplete Information", Econometrica, 54(3).
Experiment: Andreoni, J. and Miller, J.H. (1993). "Rational Cooperation in the Finitely Repeated Prisoner's Dilemma: Experimental Evidence," Economic Journal, 103.

Class notes

Paper (exchange draft/proposal with classmate May 1)
Paper (exchange comments with classmate May 3)

3.1. Evolutionary stable strategies and replicator dynamics
FL 3
OR 3.4
W 2 and 3
3.2 Evolution with persistent randomness
FL 5
Young, P. and Foster, D. (1991). "Cooperation in the Short and in the Long Run," Games and Economic Behavior, 3.
Young, P. (1993). "The Evolution of Conventions," Econometrica, 61.
Kandori, M., Mailath, G. and Rob, R. (1993). "Learning, Mutation and Long Run Equilibria in Games," Econometrica, 61.
Ellison, G. (1993). "Learning, Local interaction and Coordination," Econometrica, 61.
Johnson, P., Levine, D.K. and Pesendorfer, W. (2001). "Evolution and Information in a Gift Giving Game," Journal of Economic Theory, 100
Levine, D.K. and Pesendorfer, W. (2002). "Evolution of Cooperation Through Imitation," mimeo.
Class notes

Homework 4 Answer key

Final: May 10, 9 AM.
Paper (Any time in May or June)