Laszlo Csontos

Fall, 1995

Department of Political Science

CENTRAL EUROPEAN UNIVERSITY

**
I. About the Course.**

"Rational choice theory" is a catch-all phrase, the extension of which can be subdivided into at least three different categories. It includes (i) the theory of individual decision making and the different branches of this theory; (ii) game theory in its many different varieties, and, finally, (iii) public (or social) choice theory. This course will focus on decision and game theory; public choice theory will be discussed in great detail in the companion course

The textbook for this course is

To get the flavor of game theoretical reasoning in the social sciences students should read either

Additional texts listed below as optional readings give further, in-depth information about specific questions.

I give two midterm exams during the semester plus a final exam While the second midterm will emphasize material covered since the first exam, the final exam will be over material from the entire course.

To help the students better focus their study and analysis of the material, I will provide study questions for the text, readings, and lectures. Answers to these questions are not supposed to be handed in to me in written form, rather they are for the benefit of the students. Many of them will be discussed in class. These questions are representative of the questions that students will face on the midterm and final exams. Each of the two midterm exams will be weighted at 20%, while the final exam will count 30%.

To develop better research and writing skills, students will write a longer research paper during the course. The paper is a semester-length project analyzing some conceptual or substantive issue in terms of decision or game theory. It should be 10-15 pages in length, typed, double-spaced, with standard margins and a cover sheet containing a title for the paper, the authors (student's) name, and a brief abstract. The paper is going to form 30% of the final course grade, and it is due by the end of the first week after the winter break.

**V. Schedule and Assignments.**

**Week 1.**

1. Introduction.

2. Overview of the Course.

Optional Reading:

Binmore, K., run and Games, Lexington, Mass. - Toronto, D.C. Heath and Co., 1992, Introduction.

**Weeks 2-4.**

1. Concepts and Axioms of Decision Theory.

2. Utility Maximization - Decision under Certainty.

3. Expected Utility Maximization - Decision under Uncertainty.

Optional Readings:

Machina, M. J., "Choice under Uncertainty: Problems Solved and Unsolved", reprinted in John D. Hey (ed.), *Current Issues in Microeconomics*, New York: St. Martin's Press, 1989; pp. 12-47.

Ordeshook, P.C., *Game Theory and Political Theory*, Cambridge Mass., Cambridge University Press, 1986; last reprint 1993; Ch. 1.

**Week 5.**

1. Basic Concepts of Game Theory.

2. Zero-sum Games.

3. Dominant Strategies.

4. Iterated Dominance.

Optional Reading:

Schelling, TV C., *The Strategy of Conflict*, Cambridge, Mass., Harvard University Press, 1960.

**Week 6.**

1. Nash Equilibria and Focal Points.

2. The Normal and Extensive Forms of a Game.

3. Information Sets.

**Weeks 7-8.**

1. Mixed and Continuous Strategies.

2. The Minimax Theorem.

3. Solutions and Equilibria

4. Subgame Perfectness.

5. The Idea of Credible Threats and Credible Commitments.

Optional Reading:

Shubik, M., Came Theory in the Social Sciences, Cambridge, Mass., The MIT Press, 1982; Ch. 8.

**Weeks 9-10.**

1. Two-Person Non-Zero-Sum Games.

2. Cooperative Games.

3. Bargaining Set.

4. Nash and Threat Bargaining Solutions.

Optional Reading:

Shubik, op. cit., Chs. 9-10.

**Week 11.**

1. Evolutionary Games.

2. Evolutionary Stable Strategies.

3. Incomplete Information.

4. Repealed Games and Reputation

5. Bayesian Equilibrium.

Optional Reading:

Maynard Smith, J., Evolution and the Theory of Games, Cambridge University Press, Cambridge, U.K., 1982.

**Week 12.**

1. N-Person Games.

2. Characteristic Function.

3. Imputations.

4. The Core.

CEU Budapest, Hungary

Modified: May, 1996

Cso_RatiChoi.F95PS.v3

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