Game Theory I ​

Games in the sense of game theory are decision situations in which two or more agents - referred to as players – interact. Players are usually assumed to have well-defined objectives and to rationally pursue their goals using the available information about other decision-makers’ behavior in a forward-looking strategic way. Thus, game theory may also be described as the theory of strategic interaction. Applications of game theory to real-world problems abound, mainly in the social sciences, biology, and recently also computer science.

The course Game Theory I blends theory and applications in economics and business, like strategic competition in oligopolies or bargaining. Lectures and classes focus on non-cooperative games of complete information and Nash equilibrium as the standard solution concept. The sequel Game Theory II considers non-cooperative games of incomplete information (e.g., auctions and signaling games) and introduces seminal cooperative concepts such as the Nash bargaining solution, the Shapley value, and the core.  

The course is taught in English. The exam will be posed only in English, but questions can be answered in either English or German. If less than 5 participants register for a written exam, an oral examination may be held instead of the written exam.

Topics:

1. Introduction

• What is game theory (good for)?
• Some distinctions
• A selective history of game theory
• Von Neumann-Morgenstern utility
• Illustration

2. Static games of complete information

• Normal form
• Dominant strategies and rationalizability
• Nash equilibrium
• Existence of Nash equilibrium
• Equilibrium selection and refinement
• Replicator dynamics
• Correlated equilibrium

3. Dynamic games of complete information

• Extensive form
• Strategies in extensive games
• Backward induction and subgame perfection
• Example: Bargaining
• Repeated games
• Forward induction

Recommended textbooks:

Bestsellers:

• Holler, Manfred J., Gerhard Illing, Stefan Napel (2019). Einführung in die Spieltheorie, 7. Auflage. Berlin: Springer-Verlag.
• Osborne, Martin J. (2003). An Introduction to Game Theory. Oxford: Oxford University Press.

Fun (not only for business students):

• Holler, Manfred J., and Barbara Klose-Ullmann (2007). Spieltheorie für Manager - Handbuch für Strategen. München: Vahlen Verlag.
• Dutta, Prajit K. (1999). Strategies and Games – Theory and Practice. Cambridge, MA: MIT Press.

The real stuff:

• Maschler, Michael, Eilon Solan, and Shmuel Zamir (2013). Game Theory. Cambridge: Cambridge University Press.
• Binmore, Ken (2007). Playing for Real - A Text on Game Theory. Oxford: Oxford University Press.
• Osborne, Martin J., and Ariel Rubinstein (1994). A Course in Game Theory. Cambridge, MA: MIT Press.
• Fudenberg, Drew, and Jean Tirole (1991). Game Theory. Cambridge, MA: MIT Press.
• Myerson, Roger B. (1991). Game Theory – Analysis of Conflict. Cambridge, MA: Harvard University Press.