Game Theory   

Professor Fox is outstanding. He does a fantastic job at simplifying even the most complicated problems and relating them to real world examples. — participant from South Korea

Whereas decision theory explores how a single individual makes a decision, game theory explores situations in which multiple individuals must make decisions. A central postulate of game-theoretic reasoning is that each individual in a group tries to do the best he or she can given expectations about the behavior of other group members. Game theory has proven to be an extremely useful tool for analyzing all types of strategic interaction and in refining our understanding of a wide variety of phenomena of interest to scholars in economics, political science, sociology, and related social sciences.

By the end of the course, participants will not only have the capacity to analyze the game-theoretic scholarship published in leading social science journals, but be able to use game-theoretic reasoning to inform their own theoretical and empirical work. Game theory will allow them to unpack standing theoretical and empirical puzzles and to motivate new research.


Dates

This course was offered in 2016.


Instructor

Justin E. Fox (picture), Washington University in St. Louis


Detailed Description

Whereas decision theory explores how a single individual makes a decision, game theory explores situations in which multiple individuals must make decisions either simultaneously or sequentially. A central postulate of game theoretic reasoning is that each of the individuals in a group tries to do the best he or she can do given certain expectations about the behavior of other group members. Game theory has proven to be a very useful tool for analyzing strategic interaction and in refining our understanding of various social phenomena, such as competition between firms, interest groups, or political candidates, policymaking in democratic and non-democratic countries, and the interactions among nations. Social scientists have also used game-theoretic models to analyze the costs and benefits of various institutional arrangements, and game-theoretic reasoning has helped scholars from across the social sciences to unpack a number of empirical puzzles and to motivate further empirical scholarship.

The course consists of four main units. The first section analyzes settings where individuals have to decide what actions to choose in the absence of directly observing the choices of others. A classic example of such a setting is voting under the secret ballot. In this section of the course, we introduce the central solution concept of game theory, known as Nash equilibrium. Besides analyzing voter behavior, participants will also learn about two other canonical models of competition. Finally, we will explore various mechanisms that allow groups to overcome so-called free-rider problems that are frequently encountered in real-life settings.

The second part of the course analyzes scenarios where individuals have the opportunity to observe the actions of others prior to deciding what action to take. A classic example of such a setting is take-it-or-leave-it bargaining, where one player makes an offer and the other player can then respond by accepting or rejecting that offer. We consider the difference between credible and non-credible threats, and introduce a refinement of the Nash equilibrium known as subgame perfect equilibrium. In this section of the course, we also study a variety of bargaining models, including models of legislative bargaining, models of bargaining between the executive and legislative branches of government, and the bargaining model of war. Finally, participants will be introduces to models of delegation, such as the delegation of authority from one actor to another.

The third unit focuses on scenarios where individuals may be uncertain of the motivations, preferences, or abilities or others. These forms of uncertainty are frequently encountered in in the real word, where citizens are uncertain of the motivations and capabilities of potential leaders or where the leaders of companies and countries are uncertain of the motivations and goals of other leaders. This unit introduces the weak sequential equilibrium. This solution concept is tailored for games of incomplete information, and it is a refinement of subgame perfection from the second part of the course. We will analyze a class of game-theoretic models that allow us to study the formation and maintenance of reputation. For instance, we will explore how leaders' desire to cultivate a reputation for having the 'correct' policy preferences can lead them to pursue policies that are not in the public's best interest and under what conditions an individual's advice and recommendations can be trusted by others.

Finally, the course turns to analyzing settings where individuals have long-run relations with each other. This allows us to study cooperation, e.g., among individuals or nations.

Class meetings consist of a combination of traditional lectures and hands-on exercises. Each day, there will be problem sets assigned as homework for the afternoon study session. These problems are intended to reinforce the lecture material, and we will go over the more challenging problems as a group in class the next day.


Prerequisites

There are no prerequisites for this course.


Requirements

Participants are expected to bring a WiFi-enabled laptop computer. Access to data, temporary licenses for the course software, and installation support will be provided by the Methods School.


Core Readings

Osborne, Martin J. 2004. An Introduction to Game Theory. Oxford: Oxford University Press.


Suggested Readings

Eskridge, William N., and John Ferejohn. 1992. The Article I, Section 7 Game. Georgetown Law Review 80: 523-564.

Fearon, James D. 1995. Rationalist Explanations for War. International Organization 49: 379-414.

Fox, Justin, and Lawrence Rothenberg. 2011. Influence without Bribes: A Non-Contracting Model of Campaign Giving and Policymaking. Political Analysis 19: 325-341.

Gerson, Jacob E., and Matthew C. Stephenson. 2014. Over-Accountability. Journal of Legal Analysis 6: 185-243.

Gibbons, Robert. 1997. An Introduction to Applicable Game Theory. Journal of Economic Perspectives 11: 127-149.


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