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JOHN CABOT UNIVERSITY

COURSE CODE: "EC 327"
COURSE NAME: "Game Theory"
SEMESTER & YEAR: Spring 2019
SYLLABUS

INSTRUCTOR: Francesco Ruscitti
EMAIL: [email protected]
HOURS: MW 11:30-12:45 PM
TOTAL NO. OF CONTACT HOURS: 45
CREDITS: 3
PREREQUISITES: Prerequisites: EC 201 and MA 208
OFFICE HOURS: After class and by appointment. To schedule an appointment, just approach me in class or send me an email beforehand

COURSE DESCRIPTION:
Situations in which the outcome of your own decisions depends also upon what others do are pervasive in everyday life. Game Theory focuses on the study of strategic interactions, which occur if the payoff (e.g., utility or profit) to an agent depends not only on her own decisions but also on the decisions made by others. In the presence of strategic interactions, choosing an ‘optimal’ course of action requires taking other agents’ behavior and beliefs into account. This is an introductory course in Game Theory which develops the basic tools and concepts necessary to analyze such interactions and understand how rational agents should behave in strategic situations. In recent years, game theoretic methods have become central to the study of networks (e.g, financial networks) and social interactions. In this course they are used to analyze such economic and political issues as oligopoly, the problem of the commons, auctions, bank runs, collusion and cartels, the conduct of monetary policy, bargaining, global warming, competition among political parties, arms races, negotiations and conflict resolution (e.g., contested resources and territorial disputes). Emphasis is placed on applications, practical understanding and a tools-oriented approach. The topics will be presented through a combination of abstract theory and many applied examples.
SUMMARY OF COURSE CONTENT:

Note: This is a preliminary draft of the syllabus. When the semester starts, I will post, and hand out in class, the official version of the syllabus (including all of my policies, assessment method, and the dates of the exams) that will be much more detailed than this draft.

Note: Principles of Microeconomics and basic Statistics are both prerequisites for this course. Proficiency with algebra and geometric analysis is highly recommended.

Normal-form games, various concepts of strategy, Nash equilibrium, and related applications. Dynamic games, extensive-form representation of games (game tree) and related applications. Subgame perfection, backward induction method and related applications. The prisoner’s dilemma, finitely and infinitely repeated games and cooperation, with related applications. A Game Theory guide to negotiations and conflict resolution with real-life examples. Static games of incomplete information and related applications. The applications examined include oligopoly behavior, the median and generalized voter model, arbitration, the problem of the commons (use of common property resources), global warming, nuclear deterrence, business partnerships, bargaining, bank runs, tournaments, collusion, time-consistent monetary policy, auctions, the problem of climate change, doping in sports, arms races, territorial disputes etc.

LEARNING OUTCOMES:

Upon successful completion of this course,

  • Students should be able to formalize a strategic situation as a well-defined game, and select appropriately a solution concept to derive implications about expected behavior.

  • Students should be able to understand the way in which game theoretic models can be applied to a variety of real-world scenarios in economics and in other areas.

  • Students should be able to apply the prisoner’s dilemma game (and other types of games) to a variety of real-world conflicts, and employ game theoretic methods to develop strategies for policy analysis or in response to competitors’ moves. They should learn how ‘cooperation’ to get to a mutually beneficial outcome can be attained and enforced.







    More in general, with reference to the learning outcomes (LOS) of the Economics and Finance major, students will:

LOS 1: Build a solid understanding of and knowledge base in microeconomics and macroeconomics.







LOS 2:
Develop critical-thinking skills and learn to apply economic analysis in order to understand economic events and everyday problems.







LOS 6: Master solid communication skills in order to formulate a well-organized argument and communicate effectively in written and graphical form about specific economic and financial issues.

TEXTBOOK:
Book TitleAuthorPublisherISBN numberLibrary Call NumberComments
Strategy: An Introduction to Game Theory. Third edition, 2013Joel WatsonW.W. Norton & CompanyISBN-13: 978-0393918380 ISBN-10: 0393918386  
REQUIRED RESERVED READING:
NONE

RECOMMENDED RESERVED READING:
NONE
GRADING POLICY
-ASSESSMENT METHODS:
AssignmentGuidelinesWeight
Midterm examIn-class closed-book exam. Multiple-choice and open-ended questions. Sample questions will be posted.30% (tentative)
Two Problem sets (tentative)To be handed in on the due date. Late submissions will not be accepted. Numerical problems and open-ended questions. Students are encouraged to form study groups and work together on the homework assignments, though each student must turn in her/his own write-up35% (tentative)
Final exam (comprehensive)In-class closed-book exam. Multiple-choice, open-ended questions and numerical problems. Sample questions will be posted.35% (tentative)

-ASSESSMENT CRITERIA:
AWork of this quality directly addresses the question or problem raised and provides a coherent argument displaying an extensive knowledge of relevant information or content. This type of work demonstrates the ability to critically evaluate concepts and theory and has an element of novelty and originality. There is clear evidence of a significant amount of reading beyond that required for the course. 93-100:A. 90-92.99:A-
BThis is highly competent level of performance and directly addresses the question or problem raised.There is a demonstration of some ability to critically evaluatetheory and concepts and relate them to practice. Discussions reflect the student’s own arguments and are not simply a repetition of standard lecture andreference material. The work does not suffer from any major errors or omissions and provides evidence of reading beyond the required assignments.86-89.99:B+. 83-85.99:B. 80-82.99: B-
CThis is an acceptable level of performance and provides answers that are clear but limited, reflecting the information offered in the lectures and reference readings. 75-79.99:C+. 70-74.99:C. 65-69.99:C-
DThis level of performances demonstrates that the student lacks a coherent grasp of the material.Important information is omitted and irrelevant points included.In effect, the student has barely done enough to persuade the instructor that s/he should not fail.60-64.99:D+. 55-59.99:D. 50-54.99: D-
FThis work fails to show any knowledge or understanding of the issues raised in the question. Most of the material in the answer is irrelevant.Below 50: F

-ATTENDANCE REQUIREMENTS:

The subject matter could prove somewhat challenging. To do away with math and formal models and render the material accessible and enjoyable to non-specialist readers, the analyses presented in the textbook (regardless of the textbook selected for the course) will be properly adapted and manipulated . Therefore, taking notes in class is almost indispensable. Thus, attendance is mandatoryStudents may miss up to 3 classes without grade penalty. Beyond that, unexcused absences will be penalized.

ACADEMIC HONESTY
As stated in the university catalog, any student who commits an act of academic dishonesty will receive a failing grade on the work in which the dishonesty occurred. In addition, acts of academic dishonesty, irrespective of the weight of the assignment, may result in the student receiving a failing grade in the course. Instances of academic dishonesty will be reported to the Dean of Academic Affairs. A student who is reported twice for academic dishonesty is subject to summary dismissal from the University. In such a case, the Academic Council will then make a recommendation to the President, who will make the final decision.
STUDENTS WITH LEARNING OR OTHER DISABILITIES
John Cabot University does not discriminate on the basis of disability or handicap. Students with approved accommodations must inform their professors at the beginning of the term. Please see the website for the complete policy.

SCHEDULE

TOPICS AND TENTATIVE SCHEDULE

(The list and schedule of the topics covered is tentative and might be subject to change. Details will be provided in class)

 

Weeks

Topics

Recommended reading assignments

Submission deadlines, exam dates and topics covered (TBA in advance)

 

STATIC GAMES OF COMPLETE INFORMATION

 

 

Weeks 1,2, 3, 4

Normal form representation of games; iterated elimination of dominated strategies;

motivation and definition of Nash equilibrium;

applications: duopoly, arbitration, the problem of the commons, the median voter model, auctions and the global warming model.

Cursory introduction to mixed strategies and its interpretation (e.g., evolutionarily stable strategies etc.).

Watson: Chapters 1, 3, 7, 9, 10, 11.

 

Gibbons : Chapter 1.

 

C. D. Aliprantis et al.: Chapter 2 (optional but very useful supplementary reading). Applications in C.D. Aliprantis et al., chapter 2: the median voter and the use of common property resources model, the second price auctions model, and the global warming model.

 

 

 

 

 

 

 

SEQUENTIAL GAMES OF COMPLETE INFORMATION

 

 

Weeks 5, 6, 7

Extensive-form representation of games; subgame-perfect Nash equilibrium; Perfect information: backward induction method;

applications: wages and employment in a unionized firm, sequential bargaining, nuclear deterrence, a business partnership game.

Two-stage games with imperfect information: subgame perfection; applications: bank runs.

Watson: Chapters 2, 14, 15.

 

Gibbons : Chapter 2.

 

C. D. Aliprantis et al.: Chapter 4 (optional but very useful supplementary reading). Applications in C.D. Aliprantis et al., chapter 4: nuclear deterrence and a business partnership game; chapter 7: two-person sequential bargaining.

 

 

REPEATED GAMES

 

 

Weeks 8, 9, first half of week 10

The prisoner’s dilemma game as a stage game: cooperation vs. defection;

finitely repeated games;

infinitely repeated games;

applications: collusion and cartels, time consistent monetary policy.

Watson: Chapters 22, 23.

 

Gibbons : Chapter 2.

 

Lecture notes.

 

 

GAME THEORY, POLICY-MAKING, NEGOTIATIONS, AND CONFLICT RESOLUTION

 

 

Second half of week 10, and weeks 11, 12, and 13

The prisoner’s dilemma game as a framework for negotiation theory;

real-life applications and policy-making: the problem of climate change, doping in sports, arms races, dismantling nuclear weapons, reducing greenhouse gases emissions.

The chicken game as a framework for negotiations theory;

Real-life applications: contested resources and territorial disputes. Ways to enforce the preferred equilibrium.

Bargaining games: the Rubinstein bargaining model as a framework for negotiations theory;

Real-life applications: e.g., a certain country bargains with another country over the price for the supply of natural gas.

Watson: Chapters 18, 19.

 

Lecture notes.

 

Hal Varian: chapters 29 and 30.

 

Gardiner: A perfect moral storm.

 

Oye: Explaining cooperation.

 

Dietz, Ostrom, Stern: The struggle to govern the commons.

 

 

STATIC GAMES OF INCOMPLETE INFORMATION

 

 

Week 14

Bayesian games and Bayesian Nash equilibrium;

Applications: auctions.

Watson: Chapters 24, 26.

 

Gibbons : Chapter 3