# Microeconomics 1 (Part B)

## Contact

Andy Zapechelnyuk (Andy.Zapechelnyuk@ed.ac.uk) Personal webpage

Office: 31 Bucchleuch Place, Room 4.01 (top floor)

Office hours: Mondays 1-3pm - please book here

## Summary

Part B (game theory) is about studying strategic interactions between individuals or organisations, labeled as players, in situations where the outcome for each player depends not only on their own decisions but also on the decisions of others. The part of the course covers foundational concepts and tools to analyze scenarios where players have potentially conflicting interests or objectives, often involving conflict, cooperation, and negotiation.## Course Materials for Part B

**Textbooks:**

- Mas-Colell, Whinston, and Green (1995) “Microeconomic Theory” (
**MWG**) -*Main reference* - Gibbons (1992) “Game Theory for Applied Economists” (
**Gib**) -*Optional reference*

**Printouts:**

- Choice Under Uncertainty (Notes for this course)
- Choice Under Uncertainty (Stanford notes, extra material)
- Game Theory (Notes for this course)

**Lecture Notes (from live lectures):**

**Homeworks and solutions:**

- Homework 1 (Due Tuesday, 12th November, 9am) -- solution posted soon
- Homework 2 (Due Tuesday, 19th November, 9am)

## Part B Outline

Part B consists of 9 lectures on (Week 6, Thursday afternoon; Weeks 7-10, Thursday morning and afternoon) and 4 weekly homeworks, due Tuesday 9am in the week following the assignment. The schedule below is indicative for the topics each week.- Choice under uncertainty (MWG Chapters 6.A-6.D)
- Expected utility theory
- Money lotteries and risk aversion
- Simultaneous-move games (MWG Chapters 7.B-7.E, 8.A-8.D, Gib Chapter 1)
- Dominance and belief rationality
- Iterated deletion of dominated actions
- Nash equilibrium
- Extensive form (dynamic) games (MWG Chapters 7.C, 9.A-9.B)
- Backward induction
- Subgame perfect equilibrium
- Problems with subgame perfection
- Games with incomplete information (MWG Chapters 8.E, 8,F, 9.C)
- Information sets
- Perfect Bayesian equilibrium
- Repeated games (MWG Chapter 9 Appendix A, Gib Chapter 2)
- Finitely repeated games
- Infinitely repeated games: folk theorem, principle of optimality

## Assessment

The overall course mark is based on two examinations, in December and in May. The full (100%) course mark is determined by either the December exam or the May exam marks, whichever is better. Part B of the course constitutes 50% of the mark of each exam. Homeworks are not included in the assessment.

Part B of either December or May exam consists of two questions, weighing 25% each. Each question is graded according to the following criteria. First, it is assessed on the grasp of fundamentals. Most students get full marks on this criterion. Second, it is scored as no/barely/ok/good/excellent (i.e. 0 to 4) on:

- Model formulation
- Knowledge and application of concepts and tools
- Depth and accuracy of analysis

Each question receives a combined mark of the above scores. Exceptionally good exams and potentially failing exams are assessed holistically, i.e., demonstration of knowledge (or lack thereof) in one question can affect the mark of another question.

Practice exams and solution guidelines are available here:

- Mock Exam 1 and its Solution Guideline
- Mock Exam 2 and its Solution Guideline
- Mock Exam 3 and its Solution Guideline
- Mock Exam 4 and its Solution Guideline