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Course 2020-2021 a.y.


Department of Economics

Course taught in English

Go to class group/s: 31

CLMG (6 credits - II sem. - OP  |  SECS-P/01) - M (6 credits - II sem. - OP  |  SECS-P/01) - IM (6 credits - II sem. - OP  |  SECS-P/01) - MM (6 credits - II sem. - OP  |  SECS-P/01) - AFC (6 credits - II sem. - OP  |  SECS-P/01) - CLELI (6 credits - II sem. - OP  |  SECS-P/01) - ACME (6 credits - II sem. - OP  |  SECS-P/01) - DES-ESS (6 credits - II sem. - OP  |  SECS-P/01) - EMIT (6 credits - II sem. - OP  |  SECS-P/01) - GIO (6 credits - II sem. - OP  |  SECS-P/01) - DSBA (6 credits - II sem. - OP  |  SECS-P/01) - PPA (6 credits - II sem. - OP  |  SECS-P/01) - FIN (6 credits - II sem. - OP  |  SECS-P/01)
Course Director:

Classes: 31 (II sem.)

Suggested background knowledge

A preliminary knowledge on the following topics is suggested before attending the course: - Elementary set theory: sets, Cartesian products, functions. - Elementary analysis: open, closed and bounded subsets of Euclidean spaces; limits, continuity, derivatives, maximization of real-valued functions. - Linear algebra: vectors and operations on vectors, convexity, graphical representation on the Cartesian plane. - Probability theory: probabilities on finite state spaces, conditional probabilities, Bayes rule. - Decision theory: expected utility.

Mission & Content Summary

Game theory (GT) is the formal mathematical analysis of strategic interaction. GT now pervades most non-elementary models in microeconomic theory and many models in other branches of economics. Understanding GT is therefore necessary to study economic theory at an advanced level. Furthermore, GT provides a general theoretical language for the analysis of interaction in other social sciences as well. Indeed, although GT relies on some structural assumptions, it nonetheless provides something close to a neutral theoretical framework to develop models of interaction. For example, unlike traditional economic theory, game theory does not rest on the assumption that agents are selfish, nor that they interact within markets. The course introduces the necessary analytical tools to understand how game theory is used, and it illustrates such tools with some economic applications. The approach is formal: theoretical terms and statements are expressed by means of a precise mathematical language. Some non-standard topics are included to enhance the student's critical attitudes and to better elucidate the limits of the equilibrium paradigm that dominates both game theory and economic theory.

  • Introduction to interactive decision theory, terminology, notation.
  • Rationality and dominance.
  • Rationalizability and iterated dominance.
  • Pure strategy Nash equilibrium, interpretation, existence.
  • Mixed strategy Nash equilibrium, interpretation, existence.
  • Hints on other probabilistic equilibrium concepts: correlated and self-confirming equilibrium.
  • Games with incomplete information: rationalizability and equilibrium.
  • Multistage games: description, strategic form, relevance of applying solutions concepts to the strategic form.
  • Rational planning and the one-deviation principle.
  • Subgame perfect equilibrium and backward induction.
  • Repeated games and multiplicity of subgame perfect equilibria.
  • Bargaining games and uniqueness of subgame perfect equilibrium.
  • Multistage games with asymmetric or incomplete information, description, strategic form.
  • System of beliefs and perfect Bayesian equilibrium.
  • Signaling games, pooling and separating equilibria, foward induction.

Intended Learning Outcomes (ILO)
At the end of the course student will be able to...
  • Express strategic interaction and strategic reasoning with the language and tools of game theory.
  • Define and describe the traditional solution concepts of game theory (Nash equilibrium and its main refinements), explain their limitations, and identify the applications where they are relevant.
  • Define and describe new solution concepts like rationalizability and self-confirming equilibrium, and explain their theoretical foundation.
At the end of the course student will be able to...
  • Analyze situations of economic and social interaction as "games".
  • Solve games and predict behavior using traditional as well as new solution concepts.

Teaching methods
  • Face-to-face lectures
  • Exercises (exercises, database, software etc.)

Students are given home assignements in the form of problem sets. Such assignments are evaluated. The solutions are explained during office hours. Printouts of solutions are distributed.

Assessment methods
  Continuous assessment Partial exams General exam
  • Written individual exam (traditional/online)
  •   x x
  • Individual assignment (report, exercise, presentation, project work etc.)
  • x    
    • Students can either take two partial exams, one on the first part (intermediate partial exam) and one on the second part (final partial exam), or a general exam.
    • Individual assignements of exercises are evalutated throughout the course and contribute 20% of the final grade.

    Teaching materials

    Teaching material prepared by the instructor are distributed to the students. They include the updated versions of the following:

    • Main body of lecture notes: GAME THEORY, Analysis of Strategic Thinking.
    • Exercise book: GAME THEORY, Analysis of Strategic Thinking: Exercises.
    • All the slides used in the lectures.
    Last change 03/12/2020 15:51