Lahore University of Management Sciences

ECON 233 – Introduction to Game Theory

Instructor Lyyla Khalid

Room No. ECON WING C
Office Hours TBA – (9:30 – 10:00 ( Monday – Thursday)
Email [email protected]
Telephone 03004533016
TA Mariam Ahmed and Hajra Ajmal
TA Office Hours TBA
Course URL (if LMS page is maintained throughout the semester.
any)

Course Teaching Methodology

 Teaching Methodology: In person

 Lecture details: Slides used in class will be shared with students. There will be a 10-minute break midway into the session.

 Final Exam: Wednesday 18th December : 6:30 – 9:30 pm (Both sections)

 Midterm Exam : Saturday 26th October 10:30 am (Both sections)

Course Basics
Credit Hours 4
Lecture(s) Nbr of Lec(s) Per 2 Duration 100 minutes
Week
Recitation/Lab (per week) Nbr of Lec(s) Per Duration
Week
Office hours (per week) Nbr of Lec(s) Per 2 hrs per week Duration 12-12:30 (Monday through Thursday)
Week

Course Distribution
Core No
Elective Elective
Open for Student Category Sophomore, Juniors and Seniors
Close for Student Category Freshman

COURSE DESCRIPTION

Course description can only be updated through dean’s office.

COURSE PREREQUISITE(S)
 Statistics and Data Analysis
 The course assumes some familiarity with calculus and basic optimization.
 But most importantly, what is needed is a willingness to engage with the material and the ability to do and sustain sophisticated
thinking.

COURSE OBJECTIVES
 This course is an undergraduate level introduction to game theory and strategic thinking. It introduces the theory of non-
 cooperative games with emphasis on economic applications. Game theory is the study of multi-person decision problems where
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 action of each decision maker (player) influences payoffs of others. In such environments, optimal decision may require strategic
thinking; how one’s action will influence the incentives of other players and whether others are aware of this interconnection. By
the end of the course the students should be familiar with the basic tools used for modeling game theoretic situations and they
should be able to structure, model and solve basic everyday strategic interactions.

Learning Outcomes
At the end of the course, students should be able to
 formulate any strategic interaction as a game form,
 understand solution concepts in normal and extensive form games, and
 develop analytical and problem-solving skills to analyze games
Recognize and solve games of complete and incomplete information
Be able to recognize and solve for games of asymmetric information (lemons Problem, Insurance Market etc)

Grading break up: Component Details and weightages

Quiz(s): 2 Quizzes = 23%– No quiz will be dropped

Midterm: 30 %
Group submission (Presentation and assignments) = 9 %
Attendance : 3%
Final Examination = 35%

1 in class question will be given to solve on AN ANNOUNCED day. You have to work in groups. Whichever group solves for the correct answer
first will be the winner. They will be awarded full 1% - the next 5 groups to solve the question will be awarded 0.75%, the next 5% will be given
0.5% and then 0.25% for the last correct submissions)

There will be one group presentation at the end of the course = 4% of the grade
There will be one assignment midway in the course= 4% of the grade (some groups will be asked to present their results in class)

( Attendance will be marked from week 2 till the 2nd last week of the course. There will be no petitions for attendance for any reason. Your
attendance will be marked with an n-4 policy. No attendance will be marked the day of exams , and quizzes)

Tentative Dates of all components will be announced in class and uploaded on LMS in the first two weeks of semester.
Final Exam is comprehensive. You must come to class by 10:05 at the latest.

Important:
If you miss a quiz, you will be awarded your average for that quiz, provided you have a valid OSA-approved petition. In case you do not have an
OSA approved petition, you will not be accommodated. This policy will be held to maintain class discipline. I strongly urge you to contact OSA
as soon as possible if you miss an instrument.

Once the marks for a quiz are in, you will have THREE working days to contest the quiz if you wish to. After that, the marks for the quiz will be
sealed for the semester. We will NOT make exceptions to this.

Examination Detail

Yes/No: Yes
Combine Separate: Combined
Midterm
Duration: 2 hrs
Exam
Preferred Date: Exam week
Exam Specifications: None

Final Exam
Yes/No: Yes
Combine Separate: TBA
Duration: 2.5 hrs
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Exam Specifications: Closed book Closed notes

COURSE OVERVIEW
Recommended Objectives/
Module Topics
Readings Application
The Basics of Game Theory Watson Ch. 1 Introduction to the Course and an
1.
insight into strategic games
Concepts and Techniques Modeling Situations in a Game
 Static games Watson Ch. 2, 3, 4, 5, 6, 7, 11 Theoretic framework. Understanding
 Normal and Extensive Forms the tools and language of Game
 Dominance and Iterated Dominance Theory. Solving for NE using
2.
 Pure Strategy Nash Equilibrium
 Mixed Strategy Nash Equilibrium techniques. Motivation to the MSNE
and applications and examples.
Calculating MSNE.
Learning to solve sequential games
Dynamic Games Watson Ch. 14, 15 using tree diagrams, backward
 Revisiting Strategies and looking at Handout: Application: R & D Model- induction, and the concept of
Extensive Form Games Prajit K Dutta subgame perfection.
3.
 Sequential Rationality and Subgame Application: R & D Model
Perfection

Applications
 Auctions: First and Second Price Handout- Osborne, Martin J. (2004) Be able to identify NE in common
Auctions An Introduction to Game Theory. everyday games and applications.
 Hoteling’s Model of Electoral OUP
Competition
 War of Attrition Handout- Dutta, Prajit (1999)
4 Cournot Duopoly Model- Cournot Strategies and Games: Theory and
Nash equilibrium, Cartel solution, the Practice. MIT Press
Stackelberg model and Bertrand
Pricing

Repeated Games Be able to understand and model

 Finitely Repeated Games Watson Ch 22, 23 repeated games. Introduction to the
 Infinitely Repeated Game Handout- Osborne, Martin J. (2004) Concept of discounting.
 Reputations and Cooperation An Introduction to Game Theory. Modelling, bargaining games
OUP Under finite and infinite horizon
5
Using common and different
 An application- Bargaining games Handout- Dutta, Prajit (1999) Discount factors.
 An application- OPEC Model Strategies and Games: Theory and
Practice. MIT Press

Introduction to Incomplete
Bayesian Games Information Games: Simultaneous
 Incomplete Information games Watson Ch 24,26 and Sequential -Adverse selection
6  Bayesian Nash Equilibrium Handouts- Prajit K Dutta, Lecture More Focus on Screening games.
 Perfect Bayesian Equilibrium – Slides
Screening Games Adverse Selection

Textbook(s)/Supplementary Readings
Main text: Watson, Joel. Strategy: An Introduction to Game Theory. Third Edition. W.W. Norton & Company.

Additional Texts:
1) Dutta, Prajit (1999) Strategies and Games: Theory and Practice. MIT Press
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2) Osborne, Martin J. (2004) An Introduction to Game Theory. OUP
3) Avinash Dixit, Susan Skeath and David H. Reiley, Jr. Games of Strategy.
All of these texts are in our library. There are a number of other introductory game theory texts too. Each text will have a bit of
notational variation, but each of them covers the basic topics we will be covering.

Lecture Slides: My PowerPoint lecture slides will be available to all whenever used in class.
Good luck with the course. I wish you the very best for the semester.