Games and Strategic Behavior
What is Game Theory
Game theory - popularized by movies such as "A Beautiful Mind" - is an important tool in economic theory. While decision theory deals with individual's choices, game theory analyzes situations where decision makers influence each other. Since most decisions in business and economics involve numerous parties, game theory provides the base for analyzing these strategic interactions. Game theoretic methods are, thus, used to evaluate auctions (e.g. eBay or Google keyword auctions), bargaining, market competition, marketing campaign strategies, R&D decisions etc. But game theory is also applicable to different fields: it allows to model games like poker or chess; political scientists apply it to study voting behavior; in biology it is used to model natural selection etc.
In this course, you will learn how to describe an economic situation as a game and analyze it using different equilibrium concepts.
The first part covers the basic game theoretic framework. We will introduce static games, in which players move simultaneously, as well as dynamic games, in which players move sequentially and can strategically react to each other. Both game types are then discussed under incomplete information in which players do not possess common knowledge about each other's type or intentions. In the second part we will look at specific game theoretic applications to markets when there is incomplete information, such as signaling, screening and adverse selection.