Economics 30300. Price Theory III.
Course description. The course begins with expected utility theory, and then
introduces the fundamental ideas of game theory: strategic-form games, Nash equilibrium,
games with incomplete information, extensive-form games, sequential equilibrium, and
repeated games. Then the course will focus on the effects of risk and informational
asymmetries in markets and the problems of moral hazard and adverse selection in contract
theory. Spring 2010.
Instructor: Roger Myerson.
Main Texts:
A. Mas-Colell, M. Whinston, J. Green, Microeconomic Theory, Oxford U Press
(1995), chapters 6-9, 13-14, 19, 23, M.M.
G. Jehle, P. Reny, Advanced Microeconomic Theory 2nd ed, Addison-Wesley (2001),
section 2.4, chapter 7-9.
R. Myerson, Game Theory, Harvard U Press (1991), chapters 1-4,6,7,10.
Game theory notes, and information
economics notes.
Topics:
1. Utility theory, domination, duality: MWG sectn 6B; JR pp 92-104; My sectns
1.1-1.5,1.8-1.9; gt notes pp 1-4.
2. Strategic-form games, domination, Nash equilibrium: MWG 7D,8B-8D; JR pp 267-280; My
3.1-3.5; gt notes pp 5-7.
3. Incomplete-information games: MWG 8E; JR pp 280-285; My 2.8-2.9,3.9-3.11; gt notes pp
8-12.
4. Extensive games, sequential equilibrium: MWG 7C,9A-C,12AA; JR pp 285-321; My
2.1-2.2,4.1-4.7,7.1,7.4; gt notes pp 13-18.
5. Risk aversion and risk sharing with common information: JR 104-112; MWG 6.C-D; ie notes
pp1-4.
6. Principal-agent problems with moral hazard: JR pp 362-370; MWG 14.B; ie notes pp 5-11.
[ec303b.xls]
7. Principal-agent problems with adverse selection: MWG 14.C,23.D-F; JR pp 373-399; ie
notes pp 12-17.
8. Equilibria in markets and bargaining games with asymmetric information: JR pp 329-362;
MWG 13.A-D ie notes pp 18-24 [ec303b.xls].
Other readings: [by topic]
[2]
R. Myerson, "Nash Equilibrium and the History of Economic Theory," J Economic
Literature 37:1067-1082 (1999).
T. Schelling, Strategy of Conflict (1960) [ch 3 is J Conflict Resolution
1:19-36 (1957); see also my "Learning from Schelling"].
[5]
R Wilson, "The theory of syndicates," Econometrica 36(1):119-132 (1968).
K Borch, "Equilibrium in a reinsurance market," Econometrica 30(3):424-444
(1962).
R Coase, "The problem of social cost," J of Law and Economics 1:1-44 (1960).
[6]
G Becker, G Stigler, "Law enforcement, malfeasance, and compensation of
enforcers," J of Legal Studies 3:1-18 (1974).
C Shapiro, J Stiglitz, "Equilibrium unemployment as a worker discipline device,"
American Economic Review 74(3):433-444 (1986).
B Holmstrom, P Milgrom "Aggregation and linearity in the provision of intertemporal
incentives," Econometrica 55:303-328 (1987).
[7]
G Akerlof, "The market for lemons," Quarterly J of Economics 84:488-500 (1970).
R. Myerson, "Optimal auction design," Mathematics of Operations Research 6:58-73
(1981).
R Myerson, M Satterthwaite, "Efficient mechanisms for bilateral trading," J of
Economic Theory 28:265-281 (1983).
P Cramton, R Gibbons, P Klemperer, "Dissolving a partnership efficiently,"
Econometrica 55:615-632 (1987).
B Holmstrom, R Myerson, "Efficient and durable decision rules with incomplete
information," Econometrica 51:1799-1819.
[8]
M Spence, "Job market signaling," Quarterly J of Economics 87:355-374 (1973).
M Rothschild, J Stiglitz, "Equilibrium in competitive insurance markets,"
Quarterly J of Economics 90:629-649 (1976).
I Cho, D Kreps, "Signaling games and stable equilibria," Quarterly J of
Economics 102:179-221 (1987).
P Dasgupta, E Maskin, "Existence of equilibrium in discontinuous economic
games," Review of Economic Studies 46:1-41 (1986).
R Myerson, "Sustainable matching plans with adverse selection," Games and
Economic Behavior 9:35-65 (1995).
V Crawford, J Sobel, "Strategic information transmission," Econometrica
50:579-594 (1982).
URL of this course page: http://home.uchicago.edu/~rmyerson/econ303.htm