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Course Description

Course: Game Theory

Code: ECO412

Semester: A

Tutor: Y. Varoufakis

Game Theory studies interactions (games) between two or more interacting parties. When engaged in an interaction, each agent's decision is affected by the decision of their co-players. Game Theory analyses such strategic interdependences, aiming to predict how these interactions will play out, and to provide a theory on how rational agents choose their strategies when they interact with other rational agents.

Game Theory provides a framework which can be used for studying any interaction (from a simple card game to international policy-making by interacting countries). Its relevance with economics, in particular, is self-evident: the very notion of competition boils down to a grand game between competing firms, their workers and their consumers. Game Theory’s applicability, however, extends well beyond the realm of economics. Since Game Theory claims to hold the key to unlocking all sorts of interactions (and not only those involving prices and output), it becomes a powerful tool for throwing light on a variety of social and political phenomena.  

The course begins with a reminder of utility functions and expected utility theory, and proceeds with the study of static games and the Nash equilibrium concept. Then, the course analyses dynamic and repetitive games. The problem of indeterminacy and possible remedies are discussed. The course also covers the Bargaining Problem and its significance for the social sciences. Finally, it provides detailed expositions to two quite recent, and highly promising, developments: evolutionary game theory and psychological game theory.

Except for being a useful tool with which the student may handle any kind of strategic interaction, Game Theory is also apt to prompt interesting discussions regarding the status of economics as a social science. Students are expected to both delve into the technical aspects of the theory as well as develop personal views on the finer issues that are raised.

Syllabus:

1. Introduction / Expected utility theory
2. Static games / Nash equilibrium
3. The problem of indeterminacy and the refinement project
4. Dynamic games and subgame perfection 
5. Repeated games and the Folk Theorem
6. The bargaining problem
7. Evolutionary game theory
8. Psychological game theory

Textbook:

S. Hargreaves-Heap and Y. Varoufakis (2004). Game Theory: A critical text, London and New York: Routledge.