208Syllabus04

208Syllabus04 - Economics 208, Behavioral Game Theory...

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Economics 208, Behavioral Game Theory Winter 2004 Vincent P. Crawford, 858-534-3452, vcrawfor@weber.ucsd.edu Organization: The course meets Winter Quarter, from 8:00-9:20 on Tuesdays and Thursdays in Economics 300, with the first meeting on Tuesday, January 6 (don't miss the Epiphany!). My office hours will be Wednesdays from 2:00-3:00 or by appointment. Those who just want to hear the lectures should enroll S/U; there will then be no formal requirements. Those who want a grade should enroll for one; their requirement will be either a research paper on a topic in the general area of the course or a three-hour final exam at a time to be arranged in exam week. The final exam is the default for those enrolled for a grade; those who wish to substitute a paper should discuss the topic and timing with me by the fifth week. The final exam will include a half-hour essay question, which is now posted on the course web page; this question is meant to help you think about how to use behavioral game theory to do economics, and its choices give you some freedom to make it about the kind of economics you are interested in. There is also an optional problem set on the course web page, which should be good practice for the final exam and may help you think about some of the issues we discuss in lectures. If you are a student who plans to attend the lectures, please enroll either S/U or for a grade (this will help the Department convince the administration that graduate electives are worth offering). Abstract: Behavioral game theory is a blend of theory and empirical regularities whose goal is the kind of understanding of strategic behavior needed to analyze economic, political, and social interactions. This requires understanding the issues addressed by behavioral decision theory, plus some that are specific to multi-person settings: (i) preference interdependence (as in altruism, envy, reciprocity, or spite); and (ii) players’ mental models of other players. Here I narrow the focus to (ii), taking behavior as (mostly) rational in the decision-theoretic sense and self-interested. Game theory has described players’ mental models of others in two very different ways, which coexist too peacefully in the literature. Traditional (noncooperative) game theory assumes players form correct (self-confirming) beliefs about each other's decisions, and so, if rational, play a Nash equilibrium immediately. In effect this assumes players have perfect mental models of others (including others’ mental models of them). Adaptive learning models instead study repeated play of analogous games, making assumptions directly about players’ decisions and how they adjust them in response to experience; these assumptions invoke simplified mental models of others. In such models direct observation of others’ decisions in analogous games takes the place of mental models, and (in sufficiently stationary environments) players can learn to play an equilibrium. The main difference between the two approaches is the assumed sophistication of players’ mental
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208Syllabus04 - Economics 208, Behavioral Game Theory...

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