Economics 171: Introduction to Game Theory
Professor Gary Charness
3051 North Hall; Office Hours: Tuesdays 3:30 – 4:30
This course examines the economics of strategy using the tools of modern game theory. The insights from game theory can be important in understanding strategic interactions ranging from the pricing decisions, R&D investments, and marketing plans of business rivals, to the tactics used in salary negotiations, to the formation of regional trade alliances, to legislative voting behavior.
We will first analyze the simplest of strategic situations, those in which actors make their decisions simultaneously and have complete information about each other’s payoffs. We will then analyze situations in which actors make their decisions sequentially and must think ahead about how others will respond to their decisions. Next we will examine more complex situations in which actors possess incomplete information about others’ payoffs. For each type of situation, our goal will be to predict how rational actors should behave. We will discuss the strengths and limitations of these methods as well.
Throughout the course we will evaluate the relative success of economic theory in predicting how people actually behave in strategic settings. We will survey findings from laboratory experiments with the goals of improving our understanding of economic behavior and of developing a working knowledge of experimental methods.
Readings
Our text will be Strategy: An Introduction to Game Theory by Joel Watson (New York: Norton, 2002). Our main sources of experimental findings and methods will be drawn from journal articles and book chapters that will be made available throughout the term.
Some more advanced game theory texts will be available, either on reserve or directly from me. These texts provide more treatments of the topics covered in the course for the more mathematically inclined. In addition, they also contain a number of different examples and perspectives that all might find useful. A handful of books that survey experimental methods and findings will also be available.
Course Meeting Times
The class will regularly meet on Tuesdays and Thursdays from 2:00 to 3:15 in 3523 Phelps.
Requirements and Grading
The final grade will be based on approximately 20% problem sets, 30% midterm, and 50% final exam. The approximation relates to class participation and improvement over time. Game theory can be complicated and abstract. You will not understand the material by just coming to class. Game theory only can be learned well through practice, so it is important that you work through the examples in the readings and spend time solving the homework problems. There will be five problem sets, which will be handed out on Thursdays and due in class on the following Tuesdays. Assignments handed in late will be marked down and will receive a zero grade if they are handed in after solutions have been distributed.
Economics 171Gary Charness
Winter, 2005UCSB