Economic applications of game theory

Lectures: 2 sessions / week, 1.5 hours / session

Reciations: 1 session / week

Bear in mind that you should be at ease with basic probability theory and calculus, and more importantly, you should be used to thinking in mathematical terms. In particular, in addition to 14.01, a student must have taken either 14.03, or 14.04, or an intermediate course in probability theory. Otherwise, the student needs my explicit consent. In any case, if you are taking this course, you should be prepared to work hard.

Game Theory, also known as Multiperson Decision Theory, is the analysis of situations in which the payoff of a decision maker depends not only on his own actions but also on those of others. Game Theory has applications in several fi…elds, such as economics, politics, law, biology, and computer science. In this course, I will introduce the basic tools of game theoretic analysis. In the process, I will outline some of the many applications of Game Theory, primarily in economics.

Game Theory has emerged as a branch of mathematics and is still quite mathematical. My emphasis will be on the conceptual analysis and applications, keeping the level of mathematical technicalities to a minimum, especially at a level that should be quite acceptable to the average MIT student.

Given the class size and the difficulty of the subject, you may not follow all of my lectures. You will probably need a lot of help. This year there will be three Teaching Assistants (TAs). They will help you. There will be three recitations on each Friday. In these recitations, TAs will go over the topics that are covered by that week’'s lecture and answer your questions. Most weeks there will be some important points that I would want you to understand well, the points about which you will be examined. These points will also be covered in recitation.

The main source of the material is the detailed lecture notes I will be posting. The official textbook is:

Gibbons, Robert. Game Theory for Applied Economists. Princeton University Press, 1992. ISBN: 9780691003955. [Preview with Google Books]

The problem sets are meant to teach you the material. Hence, you are encouraged to work in groups, but every student has to write his or her own solution and submit it individually.

All exams are closed books. You may be able to get partial credit by stating the relevant facts, such as the definition of the solution concept to be used, towards the correct solution. You will also get 10% credit for each problem (or subproblem) that you leave empty (or write something like "I don't know the answer") because acknowledging ignorance is the first step to the knowledge. Nonetheless, you will not get any points for stating irrelevant facts, e.g. writing the solution to a similar problem from the problem set or past exam.

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