Shanghai University of Finance and Economics
School of Economics
Advanced Microeconomics III
Fall 2013
I. Information on Instructor
Instructor: Pei-yu Melody LO
Phone number: TBA
Office: SOE 327
Office hours: Wed 4:10 – 5:10
Email : peiyu.lo@mail.shufe.edu.cn
Homepage : TBA
Teaching Assistent : Xu Peng 徐鹏
Email: xupengprc@163.com
Office:
II. Course Information
1. Pre-requisites: There are no formal prerequisites to this course. However, this is a rather technical course and
familiarity with calculus is a must!
2. Textbooks:
2.1. Osborne, M.J. and A. Rubinstein, “A Course in Game theory”, MIT Press 1994. (OR) (An online copy is
available here)
2.2. Fudenberg and Tirole, “Game Theory”, MIT Press, 1991. (FT)
2.3. Gibbons, “Game Theory for Applied Economists”, Princeton University Press 1992.
3. A short description of the course:
This course will explore the multi-person decision-making situations when players’ payoffs depend on other
players’ choices. Game theory has notable applications in many fields, such as economics, law, business,
finance and political science. We will first review the theoretical frameworks. We will then focus on
applications such as reputation, communication, collective decision-making, modeling knowledge, and global
games. Students are expected to know basic probability theory and calculus, and to be comfortable thinking
mathematically and doing proofs.
4. Course objectives
a) Provide students with fundamental tools of game theory.
b) Provide students with solid skills to analyze game theoretic situations.
c) Develop students’ appreciation in modeling real world multi-person decision situations.
5. Language: English.
6. Lectures: TB4 Rm202, Wednesday 1:20 – 4:10 pm for 17 weeks, 3 credits.
III. Learning Outcomes
On completion of the course, students should be able to:
1. Reconstruct fundamental game theory models and clearly state their assumptions and predictions and
work out the analysis.
2. Be able to convert a standard multi-person decision situation into an analytic model and correctly analyze
it.
3. Apply and explain appropriate models or modifications to some real world issues and work out its policy
implications.
IV. Assessment
Assessment
Problem sets
Midterm
Final
Classroom particiation
Weights
30%
30%
35%
5%
There will be several problem sets, which will be due one week after being posted on my website. You can
discuss your problem sets with your classmates, but you should not copy other people’s work. Late problem sets
will not be accepted.
The midterm is scheduled in class on Oct 23. There will be no make-up exams to replace midterms that have been
missed. Students missing midterm will receive a grade of zero for the exam unless they provide documentation of
illness. The final exam will focus on materials not covered in the midterm.
V. Academic Conduct
Academic dishonesty by the student code of conduct includes cheating on the assignments or exams;
plagiarizing; altering; forging, or misusing a University academic record; taking, acquiring, or using test
materials without faculty permission; and acting alone or in cooperation with another to enhance a grade,
etc. A minimum penalty for academic dishonesty is a grade of zero. Other penalties may include a F in
course and a complaint to university authorities so that they act consequently with the corresponding
university policy.
VI . Course Schedule (tentative)
Week
1
6
Topic
Normal Form Games: finding NE,
existence and properties of NE,
dominance and rationalizability
Sept 11 Extensive form games with perfect
information: definitions, backward
induction, subgame perfect NE,
alternating offer bargaining games.
Sept 18 Repeated games: perfect monitoring,
Sept 25 Repeated games: imperfect and public
monitoring
Oct 2
Strategic form games with incomplete
information: Bayesian Nash equilibrium,
mechanism design and implementation
Oct 9
Modeling Knowledge
7
Oct 16
Optimal selling mechanism and Auction
theory
8
Oct 23
Midterm
2
3
4
5
Date
No 4
reading
OR 2.1 – 2.3, Ch 3, 4
FT 1,2
OR Ch 6, 7
FT Ch 3,4
OR Ch 8, FT Ch 5,
FT Ch 5
OR Ch 10,
FT Ch 6, 7
OR Ch 5
“Rationality and Knowledge, ” in
Advances in Economics
and Econometrics (Proceedings of the
Seventh World Congress of the
Econometric Society) Vol 1, edited by
Kreps, David M. and Kenneth F. Wallis.
Cambridge, England: Cambridge
University Press (1997)
“Auction Theory” by Vijay Krishna;
Milgrom and Weber (1982), Riley and
Samuelson (1981),
9
10
Oct 30
Nov 6
Auction Theory --- continued
Extensive Games with imperfect
information: perfect Bayesian NE,
signaling games and refinements
11
Nov 13
Reputation formation
12
13
Nov 20
Nov 27
Reputation formation --- continued
Global games and its applications
14
Dec 4
Strategic communication – cheap talk
15
Dec 11
16
Dec 18
Strategic communication – verifiable
information and sender commitment
Applications to Political economy
17
Dec 25
Final
Oct 23
OR 11, 12
FT Ch 8,
G Ch4
Bikhchandani et al. (1992)
FT Ch 9,
Kreps and Wilson (1982), Fudenberg &
Levine (1989), Horner (2002), Ely and
Valimaki (2003),
"Global Games: Theory and
Applications," in Advances in
Economics
and Econometrics (Proceedings of the
Eighth World Congress of the
Econometric Society), edited by M.
Dewatripont, L. Hansen and S.
Turnovsky. Cambridge, England:
Cambridge University Press (2003)
Carlsson and Van Damme (1993)
Abreu and Brunnermeier (2003)
Crawford & Sobel (1982), Battaglini
(2002), Morris (2001), Ottaviani &
Sorrensen (2006), Morgan and Stocken
(2003), Chakraborty and Harbaugh
(2010),
Milgrom (1981), Seidmann and Winter
(1997), Gentzkow and Kamenica
Becker and Stigler (1974), Myerson
(2010)
VII.. References
1. Battaglini, M. (2002), “Multiple Referrals and Multidimensional Cheap Talk,” Econometrica, 70, 13791401.
2. Bikhchandani, S., Hirshleifer, D. and Welch, I. (1992), “A Theory of Fads, Fashion, Custom, and Cultural
Change as Informational Cascades,” Journal of Political Economy, 100(5).
3. Becker and Sitgler (1974), “Law Enforcement, Malfeasance, and Compensation of Enforcers,” The Journal
of Legal Studies, 3 (1), pp. 1-18.
4. Carlsson, H. and E. van Damme (1993), “Global Games and Equilibrium Selection,” Econometrica, 61,
989-1018.
5. Chakraborty, A., and R. Harbaugh (2010), “Persuasion by Cheap Talk,” American Economic Review,
100(5), 2361-2382.
6. Dekel, E. and M. Piccione (2000), “Sequential Voting Procedures in Symmetric Binary Elections,”
Journal of Political Economy, 108, 34.55.
7. Ely, J. and J. Välimäki (2003), “Bad Reputation,” Quarterly Journal of Economics, 118, pp. 785-814.
8. Fudenberg, D. and D. Levine (1989), “Reputation and Equilibrium Selection in Games with a Patient
Player,” Econometrica, 57, 759-778.
9. Gentzkow, M., and E. Kamenica, “Bayesian Persuasion,” American Economic Review, 101(6).
10. Horner (2002), “Reputation and Competition,” American Economic Review, 92 (2002), 644-663.
11. Kamenica, E., and M. Gentzkow (2011), “Bayesian Persuasion,” working paper.
12. Kreps, D., P. Milgrom, J. Roberts, and R. Wilson (1982), “Rational Cooperation in the Finitely Repeated
Prisoners.Dilemma,” Journal of Economic Theory, 27, 245-52.
13. Kreps, D. and R. Wilson (1982), “Reputation and Imperfect Information,” Journal of Economic Theory,
27, 253-279.
14. Krishna, Vijay (2002), Auction Theory, Academic Press.
15. Milgrom, P. R. (1981), “Good News and Bad News: Representation Theorems and Applications,” Bell
Journal of Economics, 12(2), 380-391.
16. Milgrom and Roberts (1982), “Predation, reputation and entry deterrence,” Journal of Economic Theory,
27, 280-312.
17. Milgrom, Paul and Robert Weber (1982) “A Theory of Auctions and Competitive Bidding,”
Econometrica, 50.
18. Morgan, J. and P. Stocken (2003): “An Analysis of Stock Recommendations,” RAND Journal of
Economics, 34, 183.203.
19. Morris, S. (2001), “Political Correctness,” Journal of Political Economy, 109, 231.265.
20. Morris, S. and H. Shin, “Unique Equilibrium in a Model of Self-Fulfilling Attacks,” American Economic
Review 88 (1998), 587-597.
21. Myerson, R. (2010), “Moral Hazard in High Office and the Dynamics of Aristocracy,” working paper.
Downloadable at http://home.uchicago.edu/rmyerson/research/power.pdf
22. Ottaviani, M. and P. N. Sorensen (2006a), “Professional advice,” Journal of Economic Theory, 126,
120.142.
23. Ottaviani, M. and P. N. Sorensen (2006b), “Reputational Cheap Talk,” RAND Journal of Economics, 37,
155.175.
24. “Global Games: Theory and Applications,” in Advances in Economics and Econometrics (Proceedings of
the Eighth World Congress of the Econometric Society), edited by M. Dewatripont, L. Hansen and
S.Turnovsky.Cambridge, England: Cambridge University Press (2003).
25. Riley, John and W. Samuelson (1981), “Optimal Auction,” American Economic Review, 71, 381-392.
26. Seidmann, D. J., and E. Winter (1997), “Strategic Information Transmission with Verifiable Messages,”
Econometrica, 65(1), 163-170.