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GAME THEORY

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Syllabus

EN IT

Learning Objectives

LEARNING OUTCOMES: The course aims to provide students with the basic tools to solve strategic interaction problems. During the first part of the course the basic concepts of game theory are introduced, defining the dominant or dominated strategy, the Nash equilibrium (NE), in coordination games and in the prisoner's dilemma. We define the Nash equilibrium in mixed strategies. In sequential games, we introduce credible and non-credible threats, and we define the Subgame Perfect Nash equilibrium (SPNE).
Behavioral game theory refers to how individuals choose over what the theory predicts. We will introduce social preferences by referring to the dictator game, the ultimatum game, the trust game, the public good game. We introduce the psychological and moral costs, in particular we refer to the role of communication and the social identity within game theory with psychological and moral costs. Experimental games will be carried out through experimental laboratory.

KNOWLEDGE AND UNDERSTANDING: The course aims to provide the student with both the theoretical and methodological tools through which he can have an organic framework of basic knowledge useful for understanding the strategic interaction in cooperative and non-cooperative games, simultaneous and sequential games.

APPLYING KNOWLEDGE AND UNDERSTANDING: Students will participate in several experimental games where they will make strategic decisions. We will show how to prepare an experimental design, how to test hypotheses and how to analyze data extrapolated from experiments in lab.

MAKING JUDGEMENTS:
At the end of the course, the student will be able to have the critical analysis tools necessary to interpret and face the main problems relating to interactive or strategic relationships with autonomy of judgment.

COMMUNICATION SKILLS: The student will acquire the ability to communicate, expressing himself with economic-technical language properties, his own knowledge acquired in the context of the topics covered during the course.

LEARNING SKILLS: At the end of the course, the student will have the conceptual tools and knowledge necessary to continue their studies, also critically analyzing the motivations underlying the choices in the contexts of strategic interaction.


Prerequisites

Basic knowledge of microeconomics and elementary algebra is required. These prerequisites are the same for attending and non-attending students.

Program

GAME THEORY: Rational Approach.
Week #1
Choices in contexts of strategic interaction.
Dominant and dominated strategy.
Iterated Elimination of Strictly Dominated Strategies
Pure strategy,
Week #2
Nash Equilibrium.
Coordination and non-coordination games
Prisoner's Dilemma
Bertrand equilibrium,
Week#3
Cournot equilibrium,
Mixed strategies
Sequential games, credible and non-credible threats,
Subgame Perfect Nash Equilibrium
Entry Game
Week#4
Equilibrium of Stackelberg,
Repeated games.
Second part - Behavioral Approach to Game Theory
Experimental games to verify how individuals choose with respect to what is predicted by the theory. Experimental Literature and evidences from laboratories.
Dictator Game,
Ultimatum game,
Week #5
Trust game,
Public good game.
Social preferences (conditional or unconditional, distribution, psychological and moral)
Distinguish between the motivations underlying the choice (design and experiments)
The role of communication
Psychological and moral costs.
The role of social identity
Week #6
All the Students will play experimental games in the laboratory.

Books

An introduction to Game Theory
by Martin Osborne
Oxford University Press

Bibliography

Forsythe, Robert; Horowitz, Joel L.; Savin, N.E.; Sefton, Martin (1994). "Fairness in Simple Bargaining Experiments", Games and Economic Behavior, 6: 347– 369.
Güth, W.; Schmittberger, R. & B. Schwarze (1982). "An Experimental Analysis of Ultimatum Bargaining". Journal of Economic Behavior and Organization, 3: 367-388.
Berg J., Dickhaut J. and McCabe K. (1995) "Trust, Reciprocity, and Social History", Games and Economic Behavior, 10,122-142.
Cox (2004), "How to identify trust and reciprocity", Games and Economic Behavior, 46: 260-281.
Di Bartolomeo G. e S. Papa (2016): “Trust and reciprocity: Extensions and robustness of triadic design,” Experimental Economics, Springer: 19 (1): 100-115.
Charness, G. and Dufwenberg M. (2006), "Promises and Partnership" Econometrica 74: 1579-1601.
Vanberg, C. (2008), “Why do people keep their promises? An experimental test of two explanations,” Econometrica, 76: 1467-1480.
Di Bartolomeo, G. Duwfenberg, M. Papa, S. Passarelli F. (2019), "Promises, Expectations & Causation", Games and Economic Behavior, 114: 137-146.
Chen, Y. and S. X. Li (2009), “Group identity and social preferences,” American Economic Review, 99: 431–457.
Ciccarone, G. Di Bartolomeo, G. Papa S. (2020), "The rationale of in-group favoritism: An experimental test of three explanations", Games and Economic Behavior 124: 554-568.

Teaching methods

Lectures, exercises, and experimental games in laboratory

Exam Rules

The exam consists of a written exam, necessary to ascertain the level of knowledge of the topics indicated in the program and covered during the lessons by the Prof. Papa.
Additionally, one or more experimental games will have to be played by all students in the laboratory. These games will be mandatory for verbalizing the written exam.
The exam is based on a written test. It consists in solving problems, exercices and in answering theoretical questions, with open answers questions. The answers will be evaluated on the basis of the correctness of the result obtained; the theoretical questions will be evaluated according to the knowledge of the contents of the theories. The exam focuses on everything done in class.
The assessment will be based on the following criteria: Knowledge of the topics, ability to apply rational or behavioral theory to specific problems, language properties and analytical skills.
Possible outcomes of the written exam:
18-20: just sufficient knowledge and understanding of the topics
with multiple imperfections. Sufficient analytical, synthesis and
independent judgment skills.
21-23: Knowledge and understanding of routine topics. Correct
analysis and synthesis skills with coherent logical argumentation.
24-26: Fair knowledge and understanding of the topics. Good
analytical and synthesis skills with rigorously expressed arguments.
27-29: Complete knowledge and understanding of the topics.
Remarkable analytical and synthesis skills. Good independent
judgement.
30-30L: Excellent level of knowledge and understanding of the
topics. Remarkable analytical and synthesis skills and independent
judgement. Arguments expressed in an original way.
Furthermore, as mentioned above, to register the exam in addition to the written exam, it is necessary to play one or more mandatory experimental games (incentivized with money for the students).