Econ 204B Advanced Microeconomics Theory II

    The second quarter of the Ph.D. microeconomics sequence, this course covers the fundamentals of information and decision theory, game theory and imperfect competition. There will be biweekly problem sets, a take-home midterm and an in-class final.

    Professor Daniel Friedman 
    - Contact - Course Website
    moved to Basking Engineer 165
    Tues & Thurs - 12:00-1:45PM
    Office Hours: Tues & Thur 3:30-4:30

Department Course Description
    Economic theory of individual and market behavior, including constrained optimization, duality, theory of the consumer, theory of the producer, dynamic optimization, behavior under uncertainty, intertemporal choice, asymmetric information, game theory, partial and general equilibrium, pure and applied welfare economics, public goods and externalities. Illustrative examples emphasize international applications. Courses must be taken in sequence.





  Problem Sets 



Problem Set 3  Feb 25 - Questions [PDF]




 




  Exams 



    Final Exam  March 16
Don't forget to study previous year's mid-term exams also










  File DumpNotes, Exams, Problem Sets all unorganized
  Audio File Dump - All mp3 Recordings. Note audio time stamps in some lecture notes. 

 Lecture & Problem Sets 


Lecture Notes Organization Outline
-   Lecture Number  Date
- Summary of what was covered in Lecture. 
-   Lecture Notes PDF edition - there may also be time stamps that correspond to the audio edition
-   Lecture Notes from 2009



Overview: Information and Decision Theory
   Readings: MWG: Ch 6 - HR: Ch 1,2, 5.

  Lecture One  Jan 5th 2010
Introductions. Historical Outline. Static Risky Choice. Assumptions/Axioms of Expected Value Theorem (EVT)

  Lecture Two  Jan 7th
Expected Utility Theorem (EUT) continued and defined. Expected Utility Hypothesis (EUH). Stochastic Dominance (requiring a review of CDFs). 

  Lecture Three  Jan 12th
State Dependent Expected Utility (SDEU). Anomalies. Prospect Theory. Bayesian Decision Theory. 





Game Theory: Trees and Matrices
   Readings: MWG: Ch 7 - W07: Ch 1-4.

  Lecture Four  Jan 14th
Decision Theory Continued. Using a spreadsheet to solve Bayesian problems:  likelihoods, joint probabilities, posterior probabilities. Decision Trees. Gross Value of Information. 

  Lecture Five  Jan 19th
Bit more on Bayes. Game Theory Introduced. Extensive and Normal Form Games. A Game Defined. 

  Lecture Six  Jan 21
2010 notes are lost... ms word can suck it



Non-cooperative solution concepts
   Reading: MWG: Ch 8 - W07: Ch 5, 6, 9, 11.

  Lecture Seven  Jan 24
Games continued. Normal Form Game. The Desiderata. Nash Equilibrium Introduced. Example of a Mixed Strategy. 

  Lecture Eight  Jan 28
Nash Equilibrium Math Defined. Example with Cournot Duopoly. Rational Equilibrium, Correlated Equilibrium, Trembling Hand Equilibrium. NE and the Ultimatum Game Example. Bayesian Nash Equilibrium (for which, these notes are extremely lacking, see book etc)






Dynamic games, repeated games
   Readings: MWG  Ch 9, App.12.A, W07: 14, 15, 22, 28

  Lecture Nine  Feb 2
Sub-Game Perfect Nash Equilibrium (the conclusion of the previous section). Incomplete Information Games and Zermelo’s Theorem. Harsanyi Cookbook to Convert “Incomplete Info” game into “Imperfect Info” Game.

  Lecture Ten  Feb 4
continued from previous lecture.... Generalized Backwards Induction. Sequential Equilibrium. The Theory of Repeated Game (another section in which my notes are lacking in terms of what will be expected of you to know

  Lecture Eleven  Feb 9
Prisoner's Dilemma repeated. Folk Theorem. Mid-Term Review. 


  Mid-Term Exam  Feb 11

  Practice 2009's Mid-Term



Cooperative games, evolutionary games; Some applications to imperfect competition
   Readings: MWG: 12, W07:  Ch 18, 19, 21

  Lecture Twelve  Feb 16
Cooperative Games Introduced. Ways to Characterize a Game - The Characteristic Function. The CORE. Shapley Value. 

  Lecture Thirteen  Feb 18
Example of Characteristic Function, Defining the Core, Calculating Nash Bargaining Solution. Evolutionary Game Theory Introduced. One little example. 

  Lecture Fourteen  Feb 23
Chapter 10 of MWG. More on Evolutionary Game Theory. Market Power with Bertrand & Cournot Models.

  Lecture Fifteen  Feb 25
Bertrand Model, Differentiated Goods. 






Asymmetric Information Models
   Readings: MWG: Ch 13-14, W07: Ch 24-29

  Lecture Sixteen  March 2
Entry Games with Cournot & Bertrand (continued from previous section). Adverse Selection Introduced. The Market for Lemons. 

  Lecture Seventeen  March 9
Signalling Games. Separating vs Pooling Equilibria (lecture notes on seriously lacking on this topic, read elsewhere) Quality Examples.

  Lecture Eighteen  March 10
Screening, with several Examples. Principle-Agent Problems.

  Lecture Nineteen  March 11
Principle Agent Problem continued. Final Exam Review. 







    Final Exam
          My Graded Final Exam [PF]




    Errors & Suggestions? - Just Let Me Know   
    I'd love feedback on errors and
 typos in lecture notes



 Textbooks 

MICROECONOMIC THEORY 
  Mas-Colell, Whinston & Green 
  denoted MWG, 1995

If You're an Economist, You Should Buy the Book:  


STRATEGY: AN INTRODUCTION TO GAME THEORY
    J. Watson
    denoted W07, 2007

Gambit  download
    Game Theory software library
    game visualization and calculation

PDF File Opening Errors
I've been using Google Docs' PDF viewer to link to the resources we have here. Unfortunately, it's not always the most stable. I've seen it fail to load the preview numerous times. If you have this error, try viewing the link in a different browser or downloading the file to your computer. 



 




 Optional Readings 

A COURSE IN MICROECONOMIC THEORY 
    David M. Kreps 
    (Princeton University Press, 1990)

MICROECONOMIC ANALYSIS
Hal Varian, 1992

THE ANALYTICS OF UNCERTAINTY & INFORMATION 
    Hirshleifer and Riley 
    denoted HR, 1992


OPTIMIZATION IN ECONOMIC THEORY
by Avinash Dixit, 2nd ed., 1990 (D)

OPTIMAL STATISTICAL DECISIONS 
    Morris DeGroot 
    (McGraw-Hill, 1970).

AN INTRODUCTION TO BAYESIAN INFERENCE & DECISION 
    Robert L. Winkler 
    (Holt, Reinhart and Winston, 1972).

GAME THEORY FOR APPLIED ECONOMISTS 
    Robert Gibbons 
    (Princeton U. Press, 1992)