Prof Ignacio Palacios-Huerta NAB5.24

This course is compulsory on the BSc in Management. This course is available on the BSc in Business Mathematics and Statistics and BSc in Statistics with Finance. This course is not available as an outside option. This course is available with permission to General Course students.

Knowledge of MN201 or a comparable Microeconomics course is advisable.

This course is concerned with strategic thinking. It studies situations in which two or more decision-makers (individuals, firms, political parties, countries etc) interact in a strategic manner. Understand strategy situations involving conflict and/or cooperation has proved useful in many areas of economics, business, political science, law and social psychology. Practical applications in these areas range from the competition of firms in markets and technological races to auctions, voting behaviour, cultural norms, and others. The purpose of this course is threefold. First, introduce relevant tools of game theory in a way that we can learn to capture the key elements of different strategic interactions and determine the most likely outcome in each case. Second, study in depth various real-life applications. Third, the course will cover recent developments in behavioural game theory, including insights into intertemporal choices and strategies, decision-making under risk and uncertainty, and experiments in strategic interaction. The course is an interaction of game theory, economics and strategic management. Roughly, the following topics will be covered: fundamental concepts from game theory, simultaneous and sequential strategies, mixed strategies, unpredictability, randomization, commitment, credibility, threats and promises, and strategies under risk and uncertainty. They will all be viewed from a perspective and a framework for understanding business strategy.

20 hours of lectures and 9 hours of classes in the LT. 2 hours of lectures and 1 hour of classes in the ST.

I will distribute my own lecture notes during the course. There is no required book. However, there are four optional recommended books. The first two optional recommended books are Thinking Strategically: Competitive Edge in Business, Politics and Everyday Life (WW Norton, 1993) by Avinash Dixit and Barry Nalebuff, and The Art of Strategy (WW Norton, 2008) also by the same authors. Both are bestsellers that can be read with real pleasure and which provide formidable insights into most of the aspects and topics studied in the course.

The last two recommendations are textbooks. The first one is Games of Strategy (WW Norton, International edition, 2010) by Avinash Dixit, David Reiley, and Susan Skeath. This a delightful skeleton key to game theory and strategy, and covers about two thirds of the material in the course. The second is An Introduction to Game Theory (Oxford, 2003) by Martin J. Osborne. Although no material will be directly drawn from this book, this is probably the best book in terms of mathematical rigor, thoroughness and structure.

In addition, different readings from the economic and business press as well as articles from academic journals will be distributed throughout the course as a complement to the lecture notes.

Exam (100%, duration: 2 hours) in the main exam period.