ADVANCED MICROECONOMIC THEORY
2

Classical and Behavioral
Game Theory

CEU, Economics Department

Lecturer: Prof.
Herbert Gintis

Course: 2 credits

The students analyze
extensive and normal form games, using solution concepts that include iterated
elimination of dominated

strategies, rationalizability,
and Nash equilibrium. I present interactive epistemological analyses of
equilibrium concepts,

including the famous
Aumann and Brandeburger (1995) paper. I present modern decision theory
in some depth, as well as

experimental work
that assesses how proficient individuals are in making decisions. This
includes the usual Allais and Ellsberg

"paradoxes," prospect
theory, base rate fallacies, preference reversal, fanning out, and the
like. I present extensive evidence from

behavioral game
theory as to the nature of individual preferences (personal gain, fairness,
reciprocity, empathy, and the like). I

analyze mixed strategy
equilibria and present the Harsanyi purification theorem and the conjectural
approach of Aumann et al to

justify mixed strategy
equilibria. We study subgame perfection in some depth. We the do repeated
games, including the Folk

theorem. Students
are responsible for all definitions, statements of major theorems, and
they must be able to solve a wide

variety of problems.
The book I use is Herbert Gintis, Game Theory Evolving: A Problem-Centered
Introduction to

Strategic Interaction
(Princeton, 2000).

**Course Outline:**

*Basic Concepts of Game Theory:
Game Theory Evolving, Chapter I*

* Dominated Strategies: Game Theory
Evolving, Chapter 2*

*Behavioral Decision Theory: Game
Theory Evolving, Chapter 3*

*Behavioral Game Theory:
Game Theory Evolving, Chapter 4*

*Pure Strategy Nash Equilibria:
Game Theory Evolving, Chapter 5*

*Mixed Strategy Nash Equilibria:
Game Theory Evolving, Chapter 6*

*Subgame Perfection: Game
Theory Evolving, Chapter 7*

*Repeated Games: Game Theory
Evolving, Chapter 8*