API 303 Game Theory and Strategic Decisions · Game Theory and Strategic Decisions ... The Art of Strategy, Norton, ... Problem set due dates : Problem set 1 Monday, September 11

API 303

Game Theory and Strategic Decisions

Course Syllabus

Fall 2017

Faculty Pınar Dogan Faculty Assistant Ashley DavisPinar [email protected] Ashley [email protected]: L-215 Phone: 617 496 5865 Office: L-376A Phone: 617 495 0879

Teaching Fellow Mitchell Watt Course Assistant Hubert WuMitchell [email protected] Hubert [email protected]

Weekly Schedule

Lecture Review Session Office Hours*

Monday 1:15 - 2:30 p.m. L-280

Tuesday 1:30 - 3:30 p.m. L-215

Wednesday 1:15 - 2:30 p.m. L-280

Friday 8:45 - 10:00 a.m. L-280

*Sign-up for office hours will be posted on the faculty’s office door. If you are unable to attend the office

hours or they are full, please e-mail pinar [email protected] for a different time. Additional office

hours (TBA) will be held by the teaching fellow and the course assistant.

Course Description This course uses game theory to study incentives and strategic behavior inpractical situations of inter-dependent decision making. The course will develop basic theoreticalconcepts in tandem with applications from a variety of areas, including bargaining, competition,and strategic voting.

Prerequisites API 101 or an equivalent full-semester intermediate microeconomics course.If you have not taken API 101, you will need to ask instructors’s permission as the system will notlet you enroll automatically. Please e-mail the instructor explaining how you satisfy the prerequisiteas you are submitting your petition to enroll.

The course focuses on discrete-choice games, and therefore, calculus is not required. Comfortwith algebra and basic probability will be assumed.

Cross-registration Cross-registered students are welcome to enroll in this course. As studentssubmit their petition to cross-register, they should e-mail the instructor explaining how they satisfythe prerequisite, as well as a brief paragraph on their motivation to take this course at HKS.Petitions that are not supported with this information will not be approved.

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Auditing Policy Auditors are not accepted for this course. Exceptions can be made if both ofthe following conditions hold: (i) the student cannot enroll the course for credit (e.g., NationalSecurity Fellows), and (ii) the student commits to satisfy all the requirements of the course (i.e.,assignments and exams). Please contact the instructor.

Grading Grades for the course will be assigned based on

Problem set assignments 20%Midterm exam (in class) 20%Group assignment 30%Final exam (in class) 30%

Main Textbook

– Avinash Dixit, Susan Skeath, and David H. Reiley, Jr., Games of Strategy, 4rd Edition,Norton, 2015.

Recommended Book

– Avinash K. Dixit and Barry J. Nalebuff, The Art of Strategy, Norton, 2008.

Other Textbooks

– Prajit K. Dutta, Strategies and Games, The M.I.T. Press, 1999.

– Roy Gardner, Games for Business and Economics, Wiley, 1995.

– Joseph E. Harrington, Jr. Games, Strategies and Decision Making, Worth Publishers, 2009.

Readings Textbook readings are marked with a [T]. These readings are optional, but recom-mended if you are finding the conceptual or theoretical material for a given class especially chal-lenging. Required readings are marked as [R]. Remaining readings are recommended (popular pressarticles are not listed in this syllabus, and will be posted on the Canvas course page). Supplemen-tal readings will almost always be available online for free on the Canvas course page or in booksreserved in the library. One way to reach articles published in both academic journals and newspa-pers is through the Harvard Library/Google Scholar interface. Use the following link to access thesystem: http://scholar.google.com.ezp1.harvard.edu/ You will be prompted to enter your HarvardKey login and password. Search for the article using keywords, and use the “Find It@Harvard”link to access the electronic version of the paper.

Group Assignment The group assignment will require you to apply game theoretical conceptsto an area of your special interest, e.g. business, politics, or society, and write a 4-5 page essay.The group assignment will count for 30% of the grade.

Problem Sets There will be eight short problem sets, which will be graded. Problem sets countas 20% of the grade (2.5% each). Small groups of students—no more than four—are encouraged towork together on the problem sets. Problem solutions must be written independently by each ofthe students in the small group and no student should share his or her write-ups with others (also

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meaning, no text, table, diagram, or equation should be copied verbatim in the process). Eachsubmitted problem set must indicate the name of the students in the group.

All problem sets are due at class time. Answers to the problem sets will be posted on the classwebsite shortly after they are turned in. Problem sets turned in after the class time on the duedate will not receive any credit.

Exams Both midterm and final examinations will be “in-class”; books and notes cannot beconsulted during examinations. The final exam will be cumulative. Please check your calendars assoon as possible and avoid any scheduling conflicts for the midterm and the final. No makeupexams will be scheduled except for students with documented dire emergencies (e.g., you areadmitted to a hospital).

Computer and other electronic devices Student use of electronic devices has proven to bedisruptive to the flow of the class, and therefore, no mobile phones, tablets, PDAs, or laptopsmay be used in class. Exceptions will be made if there is a documented need. Please contact theinstructor if you fall in this category. In addition, for a few specific classes, a laptop or smartphonewill be required for an in-class simulation/game. However, even on these days, you may not useyour electronic device other than for that specific class-related exercise.

Academic Integrity You are expected to abide by the University policies on academic honestyand integrity as given in the Student Handbook (available at https://knet.hks.harvard.edu). Viola-tions of these policies will not be tolerated and are subject to severe sanctions up to and includingexpulsion from the university. The HKS Academic Code explains the policies on academic integrityin detail. All students enrolled in API-303 are required to read and adhere to those policies (

https://www.hks.harvard.edu/education/academic-calendars-policies/student-handbook/general-regulations-and-standards/academic).

Important dates :

Shopping Sessions (1:15 p.m. and 2 p.m.) Monday, August 28First class Wednesday, August 30Midterm exam (in class, 1:15 p.m. – 2:30 p.m.) Wednesday, October 18Group assignments are due Monday, November 20Final exam (in class, 9 a.m. – 12 p.m.) Thursday, December 7

Before enrolling in this course, please make sure that you do not have any schedule conflictswith the exam dates/times.

Problem set due dates :

Problem set 1 Monday, September 11Problem set 2 Monday, September 18Problem set 3 Monday, September 25Problem set 4 Monday, October 2Problem set 5 Wednesday, October 11Problem set 6 Monday, October 23Problem set 7 Monday, October 30Problem set 8 Monday, November 13

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Detailed Schedule and Readings (Tentative)DSR: Dixit, Skeath and Reiley (2015)

Class #1: Wednesday, August 30

Introduction and foundations of game theory

[T] DSR, Chapters 1 and 2.

– Schelling, T., ”What is Game Theory?” Chapter 10 in Choice and Consequence, HarvardUniversity Press (Reprinted 2007), pp. 213-242.

– Samuelson, L., ”Game Theory in Economics and Beyond,” Journal of Economic Perspectives,Fall 2016, Vol. 30(4), pp. 107-130.

Class #2: Friday, September 1

Looking forward, reasoning backwards

[T] DSR, Chapter 3.

– Dixit A. and Nalebuff B., ”Anticipating Your Rival’s Response” Chapter 2 in Thinking Strate-gically, W. W. Norton & Company, 1991, pp.31-55.

Labor Day: No class on Monday, September 4

Class #3: Wednesday, September 6

Changing the game: making threats credible

[T] DSR, Chapter 9.

[R] Schelling, T.,”Strategies of Commitment” Chapter 1 in Strategies of Commitment and OtherEssays, Harvard University Press, 2006, pp. 1-24.

Class #4: Monday, September 11

Changing the game: making promises credible

[T] DSR, Chapter 9.

– Dixit, A., ”Thomas Schelling’s Contributions to Game Theory.” Scandinavian Journal ofEconomics, 2006, Vol. 108(2), pp. 213-229.

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Application: Sequential bargaining

[T] DSR, Chapter 17, Sections 17.6-17.7.

[R] Schelling, T.,“An Essay on Bargaining,” Chapter 2 in The Strategy of Conflict, pp. 21-46.

– Roth et al, “Bargaining and Market Behavior in Jerusalem, Ljubljana, Pittsburgh, andTokyo.” American Economic Review, 1991,Vol. 81(5), pp. 1068-1095.

– Camerer, C., and Thaler, R.H., ”Anomalies: Ultimatums, Dictators and Manners,” Journalof Economic Perspectives, Spring 1995, Vol. 9(2), pp. 209-219.


Prisoners’ dilemma and its applications

[T] DSR, Chapter 4, Section 4.3.

– Schelling, “Hockey Helmets, Daylight Saving, and Other Binary Choices,” Chapter 7 in Mi-cromotives and Macrobehavior, pp. 213-243.


Collective (in)action problem and social norms

[T] DSR, Chapter 11.

[R] Elster, J., ”Social Norms and Economic Theory,” Journal of Economic Perspectives, 1989,Vol. (3)4, pp. 99-117.

[R] Ostrom, E., ”Collective Action and the Evolution of Social Norms,” Journal of EconomicPerspectives, 2000, Vol. 14(3), pp.137-158.

– Olson, M., Chapters 1 and 2 in The Logic of Collective Action , Harvard University Press1971, pp. 5-65.


Pure-strategy Nash equilibrium

[T] DSR, Chapter 4, Sections 4.1, 4.2, 4.4, and 4.7.


Coordination games and equilibrium selection

[T] DSR, Chapter 4, Section 4.6

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– Dodge, R. V., ”Coordination,” Chapter 14 in Schelling’s Game Theory, Oxford UniversityPress, 2012, pp. 157-165.

Class #10: Monday, October 2

Keeping your opponents guessing: mixed-strategies

[T] DSR, Chapter 7 (Section 7.5 optional).

Class #11: Wednesday, October 4

Mixed-strategies in practice

– Gardner, R., ”Mixed Strategies and Bluffing: Liar’s Poker,” Section 4.3 in Games for Businessand Economics, pp. 83-86.

– Chippapori, P.A., Levitt, S., and Groseclose, T., ”Testing Mixed-Strategy Equilibria WhenPlayers Are Heterogeneous: The Case of Penalty Kicks in Soccer,” American Economic Re-view, 2002, Vol. 92(4), pp.1138-1151.

Columbus Day: No class on Monday, October 9


Simultaneous and sequential-moves combined

[T] DSR, Chapter 6.


Can repeated interaction elicit cooperation?

[T] DSR, Chapter 10 (Sections 10.1-10.3 only).

– Axelrod, R., The Evolution of Cooperation, Chapters 1-4, Perseus Books (Rev Ed 2006), pp.3-87.

– Johnston, S., and Waldfogel, J., ”Does Repeat Play Elicit Cooperation? Evidence fromFederal Civil Litigation,” The Journal of Legal Studies, 2002, Vol. 31(1), pp. 39-60.

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Midterm Exam (in class): Wednesday, October 18


Games with incomplete information (1)

[T] DSR, Chapter 8, Section 8.2.

[R] Schelling, ”Thermostats, Lemons, and Other Families of Models,” Chapter 3 in Micromotivesand Macrobehavior, pp. 83-133.

– Logren, K-G., Persson, T., and Weibull, J.W., ”Markets with Asymmetric Information: TheContributions of George Akerlof, Michael Spence and Joseph Stiglitz.” Scandinavian Journalof Economics, 2002, Vol. 104(2), pp. 195-211.


Games with incomplete information (2)

[T] DSR, Chapter 8, Section 8.4.A.


Auctions (1)


[R] Milgrom, P., ”Auctions and Bidding: A Primer,” Journal of Economic Perspectives, 1989,Vol. 3(3), pp. 3-22.

– McMillan, J., ”Bidding in Competition” and ”Bidding in Olympic Competition,” Chapters11 and 12 in Games, Strategies, and Managers, Oxford University Press, 1992, pp. 133-159.

Class #17: Wednesday, November 1

Auctions (2)

– Thaler, R., ”The Winner’s Curse,” Chapter 5 in The Winner’s Curse, Princeton UniversityPress, 1994, pp. 50-62.

– Lucking-Reiley, D., ”Auctions on the Internet: What’s Being Auctioned, and How?” Journalof Industrial Economics, 2000, Vol. 48(3), pp. 227-252.

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Class #18: Monday, November 6

Signaling games (1)

[T] DSR, Chapter 8, Sections 8.4.B, 8.5, and 8.6.

– Dixit and Nalebuff, Chapter 8 in The Art of Strategy, Norton, 2008.


Signaling games (2)


Strategy and voting (1)


– Shepsle, K.A., and Bonchek, M.S., ”Strategic Behavior” and ”Voting Methods and ElectoralSystems,” Chapters 6 and 7 in Analyzing Politics, Norton 1997, pp.137-191.


Strategy and voting (2)



Cheap Talk

[T] DSR, Section 8.3.

[R] Farrell, J., and Rabin, M., “Cheap Talk.” Journal of Economic Perspectives, 1996, Vol. 10(3),pp. 103-118.

Thanksgiving Break: No class on Wedensday, November 22


Game Theory and Competition policy

– Readings TBA.

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Summing up

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Final Exam: Thursday, December 7, 9 a.m. – 12 noon

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Documents

API 303 Game Theory and Strategic Decisions · Game Theory and Strategic Decisions ... The Art of Strategy, Norton, ... Problem set due dates : Problem set 1 Monday, September 11