Spring 2016
ECON 302: Microeconomic Theory II: Strategic Behavior
Lectures:
Instructor:
Office Hours:
Website:
M 14:30-16:20 and W 14:30-15:20 in AQ 3150
Shih En Lu (shihenl@sfu.ca)
W 15:30-16:20 in WMC 4661
http://www.sfu.ca/~shihenl/302/
TA: Yang Wang (ywa81@sfu.ca)
Tutorial:
D101
D105
Office Hours: W 11:20-12:20
Time:
M 16:30
W 10:30
Office: WMC 3605
Room:
AQ 5015
WMC 2533
Note: Tutorials and office hours start in the week of 1/11. See the end of the course outline for
perturbations during the last week of class and exam period. Some office hours may be moved,
in which case you will be advised.
I. SYLLABUS
The following documents, posted online, are an integral part of this syllabus: “Details about
Grading”, “Missing or Planning to Miss a Test or a Problem Set?” and “Regrade Policy”. You
should consult them for more details about the parts of this document labeled with a star (*).
Course Description
This course introduces students to game theory, an essential part of an economist’s toolbox for
studying strategic behavior. Game theory is not only widely applied in economics, but also used
in other disciplines such as political science, biology, and psychology. Related topics covered
include market power, choice under uncertainty, asymmetric information, and, if time permits,
externalities and public goods.
Prerequisite: ECON 201/301. Quantitative.
Grading/Requirements: Your grade G (out of 100) is: G = (100-P)(A/225) + P – X.
- A is your achievement score, out of 225. It is the sum of your scores on the following:
Quiz
February 3, in class (38 minutes)
28 points
Midterm
March 7, in class (98 minutes)
72 points
Final
April 18, 8:30-11:30am (169 minutes)
125 points
- P is your problem set score, out of 25. It is possible to miss one of the problem sets and still
get 25, so there are no exemptions unless you miss two or more for valid reasons.*
- X is a penalty for certain things.* It would ideally be zero for everyone.
Thus, A is worth at least 75% of G, while P is worth up to 25%.
The thresholds for letter grades are set in a way that accounts for variations in exam difficulty
across semesters and across sections of ECON 302. Your letter grade will depend only on G and
these thresholds. Unless you have an exemption, there are no exceptions to the above formula,
and there is a penalty for asking (X).
Textbooks
There is no required textbook. However, you should keep the textbook you used for ECON 201
handy if any of the following applies: you want to see the material presented in a different way,
have trouble taking good notes, need extra practice, and/or want to learn more. I have put some
of these textbooks on reserve at the library.
Alternatively or additionally, you may use the following free resource:
- McAfee and Lewis, Introduction to Economic Analysis. Available online.
The above books cover most, but not all, of this course’s topics. In particular, they are generally
insufficient for the “plus” (+) topics on the course outline.
Other books that you may find useful (especially for some of the “plus” topics) include:
- Tadelis, Game Theory: An Introduction, Princeton University Press.
- Gibbons, Game Theory for Applied Economists, Princeton University Press.
- Osborne, An Introduction to Game Theory, Oxford University Press.
Note: While Osborne is a good book in general, be warned that its usage of the expression
“perfect information” is nonstandard and will be considered incorrect in this course.
Lectures
Questions during lecture are encouraged. Lecture slides are just a sketch of the material, so
you should take your own notes to complement them. If you miss a class, you are welcome to
see me or your TA after getting a classmate’s notes and reading them carefully. We are always
happy to answer your questions about the material, but it is not our job to repeat the lecture!
Tutorials
You will mostly go over problem sets, though some early ones will review material (either from
prerequisites or from this course) that causes difficulties. You should also ask about the parts of
the lectures that you find unclear. Take advantage of the small group size to ask questions!
Problem Sets1
Problem sets are due at the beginning of lecture on the dates indicated in syllabus. Late
assignments will not be graded, and your work must be placed in your TA’s pile and stapled if
it takes more than one sheet. Show your steps on all questions. Keep a copy of your work so
that you can follow the tutorial discussing the problem set.
You are allowed and encouraged to help each other, but each of you must handwrite your
own solutions. If we notice solutions that are suspiciously similar, we will proceed according to
university guidelines for dealing with academic dishonesty. Don’t let anyone copy your work!
The grading formula erases P% of the marks lost on exams. (To see this, rewrite it as follows:
G = (4/9)[A + (225-A)(P/100)] – X.) This can matter a lot, especially if you’re struggling.
You will likely fail this course if you do not do the problem sets and score average on exams.
1
Most problems will be the same as in previous semesters, so some of you may have access to the solutions.
Consulting them is probably a bad idea for the following reasons: (i) The main purpose of the problem sets is to help
you learn (and succeed on exams). If you do not come up with the solutions actively, you will have a much harder
time understanding them. (ii) If we find that any part of your solutions are suspiciously similar to a previous
semester’s solution set (or to a classmate’s), you get P=0. (iii) Assignments are evaluated for completeness only, so
there is no grade advantage to seeing the answers in advance.
Tests (Quiz, Midterm and Final)
Tests are closed-book and cover all material from lectures and problem sets. The midterm and
final are cumulative, but will emphasize new material. Each point corresponds to one minute of
testing, and you will have at least 35% extra time.2 Most of you will need the extra time, so don’t
be late! In a bid to discourage rote learning, I will make most exam questions from scratch.
Some will be very different from questions on problem sets or in books. As a result,
numerical scores may be low. However, I keep the difficulty of exams in mind when assigning
letter grades, so on average, your letter grade will not suffer from the difficulty of exams.
Policy on Absences, Exemptions and Regrades*
Consult the appropriate document online for deadlines and rules. A few important points:
- Only exam solutions written in pen are eligible for a regrade.
- The only acceptable documentation for medical absences, whether personal or for a
family member, is a complete SFU Certificate of Illness, with Section 1 filled out. You
must see the doctor while sick, and on (or, in certain cases, before) the exam date or
assignment due date.
- Problem sets: Only request an exemption when you have missed at least two problem sets
for valid reasons. As explained earlier, you are responsible for the first one.
- Final: Email me during the first week of class if the date conflicts with your religion.
Otherwise, only medical absences are allowed, and only for students with a reasonable
chance of passing.* Drop this course if you plan to miss the final for any other reason.
Office Hours
You are encouraged ask me any question you have about the course material (be specific),
microeconomic theory, or grad school in economics. On the other hand, all my advice about
textbooks and how to study are in this syllabus or online, so please don’t ask about those things.
Communication
Read all emails sent to you by the course staff: they may contain important announcements. You
may email me or your TA. Although we will usually respond promptly, we cannot guarantee it.
For lengthier questions, or just to talk economics, come to office hours! If you have a scheduling
conflict, but would like to see me, email me to schedule an appointment. Do not call me.
II. TENTATIVE COURSE OUTLINE
You are responsible for figuring out which sections of your textbook correspond to the lectures.
Many textbooks do not cover “plus” (+) topics in as much depth as this course will.
Preliminary Material
1/6
W
Introduction to course
1/11 M
Review
1/13 W
Monopoly
1/18 M
Monopoly (cont’d)
1/20 W
Expected utility theory+
2
Problem set 1 due
This is up from the 20% in effect from Fall 2012 to Spring 2015: I hope that the reduced time pressure will help
you perform better. In 2011-2012, the point system was different altogether.
Part I. Market Power and Games of Complete Information
Normal-Form Games
1/25 M
Introduction, Iterated strict dominance
Problem set 2 due
1/27 W
Nash equilibrium
2/1
M
Nash equilibrium (cont’d)
Problem set 3 due
2/3
W
Quiz (covers material up to and including pure-strategy Nash equilibrium)
2/8
M
Drop deadline, Start of Reading Week
2/15 M
Cournot and Bertrand competition
Problem set 4 due
Dynamic Games
2/17 W
Introduction
2/22 M
Backward induction, Stackelberg competition
Problem set 5 due
2/24 W
Subgame perfection+
2/29 M
Subgame perfection (cont’d), Repeated games
Problem set 6 due
Practice problems on subgame perfection provided
3/2
W
Repeated games (cont’d)
3/7
M
Midterm (covers material up to and including Subgame perfection)
Week of 3/7 No tutorials
Part II. Asymmetric Information (and Preferences over Risk)
Hidden Characteristic
3/9
W
Price discrimination
3/14 M
Price discrimination (cont’d), Adverse selection
3/16 W
Signaling+
3/21 M
Signaling+ (cont’d) in first half of lecture
Problem set 7 due
Problem set 8 due
Preferences over Risk and Hidden Action
3/21 M
Attitudes toward risk in second half of lecture
3/23 W
Attitudes toward risk (cont’d)
3/30 W
Moral hazard
Problem set 9 due
4/4
M
Moral hazard (cont’d) in first half of lecture
Practice problems on moral hazard provided
Part III. Externalities
4/4
M
Social and private values in second half of lecture
4/6
W
Government and externalities
4/11 M
Government and externalities (cont’d), Public goods
Practice problems on externalities provided
Note: Due to Easter Monday, the 3/30 and 4/4 tutorials will cover the same material, as will the
4/6 and 4/11 tutorials.
Week of 4/11 TA and Prof. Lu hold office hours at times to be announced
4/18 M
Final Exam (covers all course material), 8:30-11:30am