University of Texas at Dallas School of Social Sciences

Instructor: Vira Holovchenko Email: verah@utdallas.edu

Office Hours: Thursdays, 9-11:00 or Office Number: GR 2.822
by appointment

ECO 4396-003 GAME THEORY

Spring 2006

Course/Number/Section Day Time Room

ECO 4396-003 TR 11:00-12:15pm CB 1.104

Course Objective

The objective of this course is to give a practical but at the same time rigorous introduction to game
theory. Game theory is branch of economics that is also known as Multiperson Decision Theory. It
studies situations in which payoffs of agents depend on the behavior of other agents or strategic
interactions. It has become popular during the last several years and its use has exploded in recent
years in economics, finance, politics, law, biology, and computer science. The overall goal of the
course is to provide students with a foundation to recognizing and assessing various strategic
situations and applying game-theoretic analysis, both formally and intuitively.

Prerequisites

Although the game theory is an excellent tool when dealing with strategic situations, it is somewhat
analytical with some considerable use of mathematics skills. It has emerged as a branch of
mathematics and is still quite mathematical. The emphasis of this class is going to be on the
conceptual analysis and its application to real-life situations, keeping the level of math to a
minimum. Yet this still implies that students should be at ease with basis probability theory and
calculus. Two classes are listed as prerequisites for this course. They are ECO 3310 Intermediate
Microeconomic Theory and ECO 3304 Basic Techniques for Economic Research.

Course Structure

Class sessions will consist of both lectures about theory underlying different real world situations
as well as application of the theory into actual experiences in structural strategic situations.
Discussions relating experiences in structured settings to both theory and practice are an essential
part of the course.

Textbook

The main textbook is Prajit Dutta, Strategies and Games (MIT Press, 1999).

Class Meetings

The course meets on Tuesdays and Thursdays from 11:00-12:15pm in CB 1.104.

Office Hours

It regular office hours (posted above) do not work for a student, he or she is encouraged to contact
an instructor via email or WebCT to set up an appointment for another time. Students are strongly
recommended to come see an instructor throughout the semester to discuss questions about the
material, their progress in the class, or the economics minor or major. Since an instructor’s goal is

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to help students in their learning, it is expected from students to make a reasonable effort to
understand the material on their own before they come to talk to the instructor about it.

Attendance

Students are expected to be diligent in the pursuit of their studies and regular in their attendance.
Attendance is not mandatory. However, attending class regularly is highly recommended and
student roll is going to be collected each time. Attendance is going to be taken into account for
students with borderline grades. Also, students are responsible for the announcements made in
class.

Exams

The grade for the course will be based on two mid-semester exams and a comprehensive final
exam. No makeup exams will be given. If a student misses one of the three exams, he or she will
receive a zero for it. There are no exceptions. The exams will be based on the lecture material,
homework assignments, and required readings. The students have to read the material at least once
before class. Reading assignments are listed below when they are supposed to have been read. If
and when the class gets behind, the exam dates will not change. But the material covered in the
exam will be changed, so plan your semester accordingly. Also, notify the instructor in the first
week of the course about any foreseeable conflicts with the exams (e.g., 3 tests on same day). After
this, make-ups will be allowed only for serious medical or personal problems and a note from a
doctor is required.

Homework Assignments

Students will be assigned six (6) problem sets during the semester. Although students are highly
encouraged to work with other classmates on problem sets, they must turn in their own work. If a
student is caught submitting copied homework, he or she will be assigned average group grade for
that homework the first time this happens and then the grade will turn to zero in the case copied
homework it turned in again. Problem sets are due at the beginning of a class meeting (refer to the
course calendar) and late problem sets will not be accepted. Since each class meeting starts at 11
a.m., all homework assignments have to be submitted before this time at appropriate date. The
problem set with the lowest grade will be dropped (5 out of 6 assignments will be counted towards
the final grade). Thus, students won’t be penalized for not turning in one out of six problem sets if
they cannot complete an assignment on time for some valid reason. However, it is strongly
encouraged to complete and submit all the assignments. Approximately 40% of both midterm
and final material will include similar to assigned homework problems.

Grading

The grade for the course will be based on two mid-semester exams and a comprehensive final
exam. Also 6 problem sets will be handed in. A portion of the last class before each exam will be
devoted to problem solving and the review of the material. Exam grades will be curved by
normalizing the highest score on an exam to 100%.

Midterm 1 25%
Midterm 2 30%
Final 35%
Homework Assignments (5 out of 6) 10%
100%

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WebCT

WebCT is used in this class primarily for communication between students and the instructor. Also,
lecture notes, homework assignments, problem set keys, and student grades will be regularly posted
in WebCT. If a student does not have a computer at home or prefers to work on campus, he or she
may do this at the library or in the many computer labs on campus. If anyone is unfamiliar with
WebCT, the following website should be used for directions:
http://www.utdallas.edu/distancelearning/students/webct_login.htm

Learning Resources

The university offers assistance to students in many areas. Learning Resource Center offers a
variety of programs to help, ranging from individual tutoring to review classes for the GRE,
GMAT, etc. It is located in MC2.402 and can be reached at 972-883-6707. Please feel free to
contact your instructor about any concerns you have about the course.

Course Outline
January 10 A First Look at the Applications Chapter 1
January 12 A First Look at the Theory Chapter 2
January 17 Calculus and Optimization Chapter 25
January 19 Probability and Expectation Chapter 26
January 24 Utility and Expected Utility Chapter 27
January 26 Strategic Form Games and Dominant Strategies Chapter 3
January 31 Dominance Solvability Chapter 4
February 2 Nash Equilibrium Chapter 5
February 7 An Application: Cournot Duopoly Chapter 6
February 9 An Application: The Commons Problem Chapter 7
February 14 MIDTERM Chs. 1-7, 25-27
February 16 Mixed Strategies Chapter 8
February 21 Two Applications: Natural Monopoly and Bankruptcy Law Chapter 9
February 23 Zero-Sum Games Chapter 10
February 28 Extensive Form Games and Backward Induction & An Chapter 11-12
Application: Research and Development
March 2 Subgame Perfect Equilibrium Chapter 13
March 14 Finitely Repeated Games Chapter 14
March 16 Infinitely Repeated Games Chapter 15
March 21 An Application: Competition and Collusion in the NASDAQ Chapter 16-17
Stock Market & An Application: OPEC
March 23 Dynamic Games with an Application to the Commons Chapter 18
Problem
March 28 MIDTERM Chs. 8-18
March 30 Moral Hazard and Incentives Theory Chapter 19
April 4 Games with Incomplete Information Chapter 20
April 6 An Application: Incomplete Information in a Cournot Duopoly Chapter 21
April 11 Mechanism Design, the Revelation Principle, and Sale to an Chapter 22
Unknown Buyer
April 13 An Application: Auctions Chapter 23
April 18 Signaling Games and the Lemons Problem Chapter 24
April 20 REVIEW
April 25 COMPREHENSIVE FINAL Chs. 1-27

THIS SYLLABUS IS TENTATIVE AND SUBJECT TO CHANGE

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 ECO 4396-003 GAME THEORY
University of Texas at Dallas
Spring 2006

Week 1 Week 2 Week 3 Week 4

10 17 24 31
Tuesday Chapter 1 Chapter 25 Chapter 27 Chapter 4
11:00am- Hw 1 Hw 1 Due
12:15pm (1,2,25,26)
Distributed
January
12 19 26
Thursday Chapter 2 Chapter 26 Chapter 3
11:00am-
12:15pm

Week 4 Week 5 Week 6 Week 7 Week 8

7 14 21 28
Chapter 6 MIDTERM 1 Chapter 9 Chapters 11-
Tuesday Hw 3 (8-10) 12
11:00am- Distributed Hw 3 Due
12:15pm

February
2 9 16 23
Chapter 5 Chapter 7 Chapter 8 Chapters 10
Thursday Hw 2 (27, 3-6) Hw 2 Due
11:00am- Distributed
12:15pm

Week 8 Week 9 Week 10 Week 11 Week 12

7 14 21 28
Tuesday SPRING Chapters 14 Chapter 16-17 MIDTERM 2
11:00am- BREAK Hw 4 Due Hw 5 (14-17)
12:15pm (no class) Distributed

March 2 9 16 23 30
Chapter 13 SPRING Chapter 15 Chapter 18 Chapter 19
Thursday
Hw 4 (11-13) BREAK Hw 5 Due
11:00am-
Distributed (no class)
12:15pm

Week 13 Week 14 Week 15 Week 16

4 11 18 25
Chapter 20 Chapter 22 Chapters 24 FINAL
Tuesday
11:00 am
11:00am-
12:15pm

April
6 13 20
Chapter 21 Chapter 23 REVIEW
Thursday
Hw 6 (19-24) Hw 6 Due
11:00am- Distributed
12:15pm