DEPARTMENT OF ECONOMICS
PURDUE UNIVERSITY
ECON610: GAME THEORY
Spring 2011
Sandra Maximiano
Office: KRAN 523
E-mail: [email protected]
Webpage: http://www.smaximiano.com
Class Meetings: Tue & Thu, 9.50pm-11.2 0pm, Rawls 2079
Office Hours: Tue & Thu, 4.30pm-5.30pm, and by appointment, KRAN 523
Overview
This is a non-cooperative game theory course aimed primarily at first year PhD students in
Economics, Management sciences, Finance, and related fields. PhD students from other fields
of studies are very welcome, as well, but they should have a strong mathematical background
and to be open to the economic applications. The course covers important theory and
equilibrium concepts. This course aims at providing the necessary tools for applying game
theoretical models to a large set of applications. For those that will conduct research within the
field of game theory, this course will serve as foundation. The major topics are strategic form
games, extensive form games, Bayesian games with a focus on auction theory, mechanism
design, infinite horizon games, and repeated games. Evidence from experimental economics
will be discussed.
Requirements
Grades are based on one midterm (beginning of February) and a final exam. There are 2 group
assignments that count 25% in total. Assignments must be turn in within one week of being
assigned. The midterm counts 25% and the final exam 50% of your grade. As practice for the
exams, you will get some problem sets. Problems sets are homework and are not going to be
collected nor graded.
Recommended Texts
Gibbons, R. (1992). Game Theory for Applied Economists, Princeton University Press.
Gibbons’ book gives an easy but rigorous introduction to game-theoretic analysis. While
Gibbons’ emphasis is on teaching economists the basic tools of game theory, readers
seeking more analytic structure will find the text invaluable.
Fudenberg, D. and Tirole, J.(1991). Game Theory. MIT Press
This is a standard and comprehensive text book for graduate-level game theory. It is more
advanced than Gibbons.
Krishna V. (2002). Auction theory. Academic Press.
A graduate book with the central topics to the auction theory.
Osborne, M. J., and Rubinstein, A. (1994). A course in Game Theory. The MIT Press.
Better treatment on repeated games and extensive form games than Fudenberg and
Tirole.
Myerson, Roger (1997). Game Theory. Analysis of conflict. Harvard Press.
Technical, but readable. Has additional examples and understanding beyond Fudenberg
and Tirole.
For those that never attended an introductory course in game theory:
Osborne, M. J.(2002). An introduction to game theory. Oxford University Press.
A good introductory book.
Behavioral game theory:
Camerer, C (2001). Behavioral Game theory. Experiments in Strategic Interaction. Princeton
University Press.
This book is a “must” in the field of Behavioral game theory. Colin Camerer is one of the
leading figures in the field. The book blends experimental evidence and psychology in a
mathematical theory of normal strategic behavior.
Optional and fun reading:
Dixit, A. and B. Nalebuff, (2008). The Art of Strategy, WW Norton, 2008 (Hereafter DN)
Dixit, A. and B. Nalebuff, (1991). Thinking Strategically, WW Norton, 1991.
A very readable introduction to the main ideas in game theory and their application to realworld situations.
Some original articles:
Abreu, D., P. K. Dutta and L. Smith (1994). Folk Theorems for Repeated Games: A NEU
Condition. Econometrica, 62: 939-948
Aumann, R. (1987). Correlated Equilibrium as an expression of Bayesian Rationality.
Econometrica, 55: 1-18
Bernheim, D. B. (1984). Rationalizable Strategic Behavior. Econometrica, 52: 1007-1028
Fudenberg, D., D. Kreps and D. K. Levine (1988). On the Robustness of Equilibrium Refinements.
Journal of Economic Theory, 44: 354-380
Fudenberg, D. and D. K. Levine (1993). Self-Confirming Equilibrium. Econometrica, 61: 523-546
Fudenberg, D. and E. Maskin (1986). The Folk Theorem for Repeated Games with Discounting
and Incomplete Information. Econometrica, 54: 533-54
Fudenberg, D., D. M. Kreps and E. Maskin (1990). Repeated Games with Long-run and Short-run
Players. Review of Economic Studies, 57: 555-573
Rubinstein, A. (1982). Perfect Equilibrium in a Bargaining Model. Econometrica, 50: 97-110
Web resources
I will post class announcements, additional readings, and assignments on Katalyst. Make sure
you check the course website regularly for updated information about the course. There may
be occasions where announcements will be made in class and not posted on the website.
COURSE OUTLINE (TENTATIVELY)
Part I. Introduction, basic concepts and Foundations (1 lectures)
Part II. Static games of complete information (3 lectures)
Games in the strategic form
Mixed strategies
The fundamental theorem of game theory
Solving for mixed strategies equilibrium.
Experimental evidence.
Strict dominance and rationalizability
Refinements:
Dominance
Trembling hand perfection
Correlated equilibrium
Applications and experimental results
Part II. Static games of incomplete information (5 lectures)
Bayesian Games
Bayesian Nash Equilibrium
Mechanism design
Applications:
Auction theory:
Introductions to private value auctions
The revenue equivalence principle
Principal agent problem with complete and incomplete observability
Experimental evidence
Part III. Dynamic games of complete information (3 lectures)
Games in the extensive form
Strategies and equilibrium
Sequential rationality, backward induction, and subgame perfection
Refinements:
Trembling hand perfection
Infinitely Repeated games
Folk theorem
Long vs short run players
Experimental results
Part IV. Dynamic games of incomplete information (2 lectures)
Perfect Bayesian Equilibrium
Signaling games
Applications
Refinements of Perfect Bayesian equilibrium