- The objective of the course is to provide the students with knowledge and understanding on how to model the behavior of agents in situations, where have reason to act strategically. In the first part of the course, the students will learn game theory, which is the systematic study of how rational agents behave in strategic situations, or in games, where each agent must first know the decision of the other agents before knowing which decision is best for himself. In the second part of the course, the students will be introduced to a situation in which different agents possess different information (i.e., asymmetric information) and see that the strategic opportunities arising in the presence of asymmetric information typically lead to inefficient market outcomes, a form of market failure. We will learn two forms of asymmetric information - adverse selection and moral hazard – and get familiar with the existing market solutions to the adverse selection and moral hazard problems.
- • To get familiar with games in which the agents make a single, simultaneous choice (Strategic-form Games) and with games in which players may make choices in sequence (Extensive-form games).
- • To learn a variety of methods for determining the outcome of a game, which gives rise to a particular solution concept such as dominant strategy equilibrium, Nash equilibrium, Bayesian-Nash equilibrium, backward induction, subgame perfection, and sequential equilibrium.
- • To learn why asymmetric information can lead to inefficient market outcomes due to the two reasons: adverse selection and moral hazard.
- • To get familiar with the existing market solutions to the adverse selection and moral hazard problems (Signalling, Screening, Performance related contract).
- 1 Game Theory, Strategic-form games
- 2 Extensive-form games
- 3 Subgame Perfect Equilibrium and Sequential Equilibrium
- 4 Asymmetric Information and Market Failure
- 6 Moral Hazard
- 2023/2024 2nd module0.1 * Homework assignments + 0.025 * In-class participation + 0.35 * Interim written assignment + 0.4 * Final exam
- Advanced microeconomic theory, Jehle, G.A., 2011
- Advanced microeconomic theory, Jehle, G., 2000
- Ariel Rubinstein. (2012). Lecture Notes in Microeconomic Theory: The Economic Agent Second Edition. Princeton University Press. Retrieved from http://search.ebscohost.com/login.aspx?direct=true&site=eds-live&db=edsrep&AN=edsrep.b.pup.pbooks.9742
- Bergin, J. (2005). Microeconomic Theory : A Concise Course. Oxford: OUP Oxford. Retrieved from http://search.ebscohost.com/login.aspx?direct=true&site=eds-live&db=edsebk&AN=215492