Game Theory II ​(Mikroökonomik für Fortgeschrittene II) 

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 and lectures and exercise classes alternate loosely (20 units in total). The exam will be posed in English (questions can, however, 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.

The course Game Theory II gives 6 credit points as Mikroökonomik für Fortgeschrittene II  in "Spezialisierung: Modelltheorie" for MSc. Economics, in "Spezialisierung: Ökonomische Modellbildung und empirische Analyse" for MA IWG and in "Modul C2 – Economics Electives" for MA P&E.

Topics:

1. Introduction

2. Static games of incomplete information

• Harsanyi’s transformation
• Bayesian games
• Bayesian equilibrium
• Auctions
• Revelation principle

3. Dynamic games of complete information

• Perfect Bayesian equilibrium
• Sequential equilibrium
• Signaling games
• Further refinements

4. Selected cooperative solution concepts

• Nash bargaining solution
• Shapley value
• Core

Recommended textbooks:

Bestsellers:

• Holler, Manfred J., and Gerhard Illing (2009). 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):

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

The real stuff:

• Binmore, Ken (2007). Playing for Real – A Text on Game Theory. Oxford: Oxford University 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.
• Osborne, Martin J., and Ariel Rubinstein (1994). A Course in Game Theory. Cambridge, MA: MIT Press.