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Microeconomics, Part II, 2014‐2015 Prof. Ferdinando Colombo 1. Choice under risk and uncertainty a.
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Risk and uncertainty [MWG 6A]. Reduction of compound lotteries and preference over lotteries [MWG 6B]. Independence axiom and von Neumann ‐ Morgenstern Theorem [MWG 6B]. Savage’s theory [MWG 6F, SA 2.1‐2.7]. Monetary payoffs and first degree stochastic dominance [MWG 6C, 6D, HL 2.2‐2.4]. Expected value, certainty equivalent, risk premium, probability premium and attitude towards risk [MWG 6C, HL 1.24‐1.25]. g. Risk premium and absolute/relative risk aversion [DD 4.3.1, 4.3.2]. h. Second degree (monotone) stochastic dominance [HL 2.5‐2.10, MWG 6D]. i. Optimal porfolio choice and local risk neutrality [MWG 6C, HL 1.18‐1.22]. Textbooks: [MWG] Mas Colell, Whinston and Green (1995): Microeconomic Theory, OUP. [HL] Huang and Litzenberger (1988): Foundations of Financial Economics, Prentice Hall [DD] Danthine and Donaldson (2005): Intermediate Financial Theory, Elsevier. [SA] Savage (1972, first edition 1954): The Foundations of Statistics. Additional useful references: Van Zandt (2006): Introduction to the Economics of Uncertainty and Information, mimeo Gollier (2001): The Economics of Risk and Time, MIT Laffont (1989): The Economics of Uncertainty and Information, MIT Hirshleifer and Riley (1992): The Analytics of Uncertainty and Information, CUP EEckhooudt et al (2005): Economic and Financial Decisions under Risk, PUP 2. Game Theory a.
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Strategic (normal) and extensive form [M 2.1‐2.2]. Incomplete information and Bayesian games [M 2.7‐2.9]. Bayesian approach to game theory and dominance [M 1.8‐1.9]. Iterated elimination of dominated strategies and rationalizability [M 2.5, 3.1]. Nash equilibrium [M 3.2, 3.3, 3.12] Rationale for the adoption of an equilibrium concept [M 3.4, 3.5]. Bayesian equilibrium [M 3.9]. Mixed strategies and their interpretations [M 3.10, OR 3.2]. Correlated equilibrium [M 6.1‐6.2] j.
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Strategic form games and refinements. (Trembling hand) perfect and proper Nash equilibrium [M 5.1‐5.4] Extensive form games and sequential rationality: backward induction [M 4.3‐4.4]. Extensive form games and sequential rationality: subgame‐perfect Nash equilibrium [M 4.6]. Extensive form games and sequential rationality: Bayesian perfect and sequential equilibrium [M 4.5]. Forward induction and “intuitive criterion” [M 4.9]. Repeated games and folk theorems [FT 5.1.1, 5.1.2] Textbooks: [M] Myerson (1991): Game Theory: Analysis of Conflict, HUP [MWG] Mas Colell, Whinston and Green (1995): Microeconomic Theory, OUP. [OR] Osborne and Rubinstein (1994): A Course in Game Theory, MIT Press [HK] Hillas and Kohlberg (2002), Foundations of Strategic Equilibrium, in Aumann and Hart “Handbook of Game Theory”, vol. 3, Elsevier Science B.V. pp. 1597‐‐1663. [FT] Fudenberg and Tirole (1991): Game Theory, MIT Press, pp.145‐160 Additional useful references: Osborne (2004): An Introduction to Game Theory, OUP Heifetz (2012): Game Theory, CUP Van Damme (1987): Stability and Perfection of Nash equilibria, Springer Verlag Aumann and Brandenburger (1995): “Epistemic Conditions for Nash Equilibrium”, Econometrica, 63(5), 1161‐‐1180. Bernheim (1986): “Axiomatic Characterizations of Rational Choice in Strategic Environments”, Scandinavian Journal of Economics, 88(3), 473‐‐488. Brandenburger (1992): “Knowledge and Equilibrium in Games”, Journal of Economic Perspectives, 6(4), 83‐‐101. Cho and Kreps (1987): “Signaling Games and Stable Equilibria”, Quarterly Journal of Economics, 102(2), 179‐‐221. Harsanyi (1995): “Games with Incomplete Information”, American Economic Review, 85(3), 291‐‐303. Kohlberg (1990) Refinements of Nash Equilibrium: The Main Ideas, in Ichiishi, Neyman and Tauman “Game Theory and Applications”, Academic Press, pp. 3‐‐45. Kreps (1989): “Out‐of‐Equilibrium Beliefs and Out‐of‐Equilibrium Behaviour,'' in Hahn: The Economics of Missing Markets, Information, and Games, Clarendon Press, Oxford, pp. 7‐45. Mailath (1998): “Do People Play Nash Equilibrium? Lessons From Evolutionary Game Theory”, Journal of Economic Literature, 36, 1347‐‐1374.