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Game Theory

026 Game Theory & Strategic Behavior

【Prerequisites】

Students need to have basic calculus knowledge.

【Description】

Game theory is the study of situations in which the payoffs to a given person depending on other people's actions. For example, what price should a firm set for its product? Or what policies will a political candidate propose? In these cases, the optimal answer depends on what the firm or candidate expects their competitors to do. We will examine strategic interactions by first looking at situations in which actors make their decisions simultaneously and have complete knowledge about everyone’s payoffs. We will then successively refine this approach according to the following criteria. What if the findings are sequential instead of simultaneous? What if players have less than complete information about their opponents’ payoffs? And if time permits, what if the game is played repeatedly – finitely or infinitely? At each step, the goals are to predict how rational actors might behave, recognize the strengths and weaknesses of the models, and learn to identify the critical issues of strategic relevance in each setting. For their final research projects, each student in this course will place a strategic situation, a model that decision using the methodology from class, and then solve the game using the appropriate Nash equilibrium concept. If relevant, empirical results from published articles or other sources will be incorporated to shed light on the equilibrium solution. 

【Sample research topics】

  • How can neighborhoods be racially segregated even when people would prefer multiracial communities?

  • Do matching donation programs increase donations?

  • When should you follow the advice of an expert (auto mechanic, physician, repair person) and pay to follow their recommendation?

  • When should a company enter a new market?

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