ECON 421

UBC

Spring, 2023

Li, Hao

Course Outline

**Professor**: Li, Hao, 604-822-6685, Iona Building 112, hao.li@ubc.ca, https://lihao.microeconomics.ca/.

**Course Canvas page**: https://canvas.ubc.ca/courses/102110.

**Classes**: Tuesdays and Thursdays 11am to 12:30pm, at Buchanan D316.

**Announcements**: Check the Announcement section on the Canvas page regularly for updates on all things about the course.

**Teaching Assistant**: Aditi Singh (aditi095@gmail.com). Every week Aditi will conduct a one-hour tutorial session that you should have already signed up for. Aditi will also hold weekly office hours, on Tuesdays at 2:30-3:30 in room 434 of Iona.

**Textbook**: *An Introduction to Game Theory*, by Martin Osborne. Previously I have used *Game Theory for Applied Economists* by Robert Gibbons. Compared to the textbook by Osborne, the book by Gibbons has a less comprehensive treatment of game theory but focuses more on economic applications. The book by Osborne is required, and is available at the UBC bookstore, but some of the material in this course will be incorporated from the book by Gibbons in my lecture notes. Osborne and Rubinstein’s *A Course in Game Theory* contains some examples used in class but is a graduate level textbook. For the mathematically inclined, Fudenberg and Tirole’s graduate-level *Game Theory* is the ultimate source.

**Office hours**: Wednesdays 9am to 10:30am.

**Goals**: The main goal of this course is to introduce you to (non-cooperative) game theory as a bag of tools essential to modern economic analysis. The focus will be on tools and frameworks that are taken to broadly defined economic applications. Along the way, you will be expected to learn the most important concepts in game theory, and to improve your ability to model and analyze economic problems in general.

**Math level**:** **Calculus is required for this course. Basic knowledge of set theory and probability theory is not required, but will be helpful. The textbook has an appendix (Chapter 17) that may be useful for a quick math review.

**Evaluation**: Your grade in the course will be based on your marks in 10 homework assignments, 1 midterm test and 1 final exam. The total weight of the assignments in the course grade is 10%, so each assignment is worth 1 point out of 100. I will post assignments on the Canvas page; most but not all the assignments are from the textbook. You will have two weeks to complete an assignment and submit it online on Canvas. After the assignments are submitted the answers will be posted. The T.A will not correct the assignments, and will grade them according to how much effort was put in: 0 for no effort or very little effort, 0.5 for some but insufficient effort, and 1 for sufficient effort. The weight on your midterm is 40% and the weight on your final is 50%. If your score on the final (out of 100) is better than your score on the midterm (out of 100), the final score will count for 90%. The midterm is tentatively set to Thursday February 16 at 11am in class. If for medical reasons or other emergencies you are unable to take the midterm, all 40% of the weight on the midterm will be automatically transferred to the final; there will not be a make-up test.

**Structure**: The course is divided into four parts according to the classes of games we use as the framework for economic applications: static games of complete information (Chapters 2 to 4 in the textbook), dynamic games of incomplete information (Chapters 5-7), static games of incomplete information (Chapter 9), and dynamic games of incomplete information (Chapter 10). My lecture notes follow the textbook fairly closely, especially for the first two parts. In greater detail, the order of chapters in the textbook to be covered is as follows:

Lecture 1: Nash Equilibrium. Chapter 1 (Introduction) 1-3; Chapter 2 (Nash Equilibrium: Theory) 1-6, 8, 9

Lecture 2: Applications of Nash Equilibrium. Chapter 3 (Nash Equilibrium: Illustrations) 1-3

Lecture 3: Mixed-strategy Nash Equilibrium and Applications. Chapter 4 (Mixed-strategy Equilibrium) 1-3, 8, 12

Lecture 4: Subgame Perfect Equilibrium. Chapter 5 (Extensive Games with Perfect Information: Theory) 1-5; Chapter 7 (Extensive Games with Perfect Information: Extensions and Discussion) 1, 2, 6

Lecture 5: Applications of Subgame Perfect Equilibrium. Chapter 6 (Extensive Games with Perfect Information: Illustrations) 1, 2; Chapter 16 (Bargaining) 1

Lecture 6: Repeated Games. Chapter 14 (Repeated Games: The Prisoner’s Dilemma) 1-6, 9-11; Chapter 15 (Repeated Games: General Results) 1, 2, 4

Lecture 7: Bayesian Nash Equilibrium. Chapter 9 (Bayesian Games) 1, 2

Lecture 8: Applications of Bayesian Nash Equilibrium. Chapter 9 (Bayesian Games) 3-8

Lecture 9: Perfect Bayesian Nash Equilibrium. Chapter 10 (Extensive Games with Imperfect Information) 1, 2, 3, 4

Lecture 10: Signaling Games. Chapter 10 (Extensive Games with Imperfect Information) 5-8