Post Graduate Program in Management (PGPM)
Teaching Plan (Course Description) – 2023
Course Code PGCM-22-23-O/E-T7-GT
Course Title Game Theory and Strategic Choice
Course
Dr. Bappaditya Mukhopadhyay
Instructor(s)
Credit Value 2
Program/Term PGPM – Term 7
Pre-requisite None
PLOs PLO-1. Conceptual understanding and practical application of pertinent theories to solve
business and organizational problems
PLO-2. Demonstrate analytic and decision-making skills
PLO-3. Ethical Awareness and/or Socio-cultural sensitization
Course Learning CLO1: How individuals response to incentives through Cooperative and Non Cooperative Games (PLO1)
outcomes CLO2: Understanding Basics of Auction Theory; Voting and resolving Conflict of Interest (PLO2)
CLO3: Understanding and application of Axiomatic Choice (PLO3)
About Game Theory
Game theory studies competitive and cooperative behavior in strategic environments,
where the fortunes of several players are intertwined. It provides methods for identifying
optimal strategies and predicting the outcome of strategic interactions. The field of game
theory began around 1900 when mathematicians began asking whether there are optimal
strategies for parlor games such as chess and poker, and, if so, what these strategies might
look like. The first comprehensive formulation of the subject came in 1944 with the
publication of the book Theory of Games and Economic Behavior by famous
mathematician John von Neumann and eminent economist Oskar Morgenstern. As its title
indicates, this book also marked the beginning of the application of game theory to
economics. Since then, game theory has been applied to many other fields, including
political science, military strategy, law, computer science, and biology, among other areas.
In 1994 three pioneers in game theory were awarded a Nobel Prize, marking the ‘arrival’
of the field. Since then a number of game theorists have been awarded the Nobel
highlighting the central role the field has come to occupy in economics.
Among the other applications, game theory today is finding its way into the world of
business.
(Pick up a business magazine or book and there is a good chance that it will use some game
theory jargon: zero-sum game, Prisoner’s Dilemma, win-win game, etc.) We will be
learning the underlying theory in the course, and using it to understand the principles of
strategic behaviour in business.
Course Content
The course is divided into two parts: game theoretic tools for analysis and application of
the tools to a variety of interactive contexts drawn from business and policy making. The
topics covered by the course are given below.
Co Operative Games
Assessing the value of players and coaltions (‘Cooperative Games’)
In this module we assume that players in a game can make binding contracts and ask the
basic question: given the ‘value’ of individuals and coalitions what is a rational way to
divide the pie between the individual players and what is the likely structure of coalitions
that form. We will also discuss alternate ways to allocate costs between various parties.To
answer, we will introduce techniques for thinking about such situations and calculating the
value of players under different assumptions. Topics covered in this module include
definition of the coalitional form of a game, solution concepts like the core, Shapley value
etc.
Non Co operative Games
Games with Complete Information
Thinking About What They’re Thinking
In this module we begin with an overview of the basic principles of ‘non-cooperative
games’. With these games in mind, we then ask the basic question: How can a player
choose a good strategy when the best choice depends on what strategies the other players
in the game choose? To answer, we will introduce techniques for thinking through the
game from the positions of the other players, and anticipating their choices. Topics
covered in this module include definition of games in normal and extensive form, principle
of dominant strategies and safe strategies, Nash Equilibrium, backward induction
equilibrium. Well known games such as the The Prisoner’s Dilemma, the Battle of the
Sexes, the Coordination Game …will be studied.
Games with Incomplete Information
Asymmetric Information: Mechanism Designs and Contracts
Mechanism Design
In this session, we look at the art of designing rules of a game to achieve a specific
outcome. This is done by setting up a structure in which each player has an incentive to
behave as the designer intends. After introducing the revelation principle we will apply
the theory to the design of financing “public goods” using the Clark Groves mechanism.
Auctions
We will study the application of the principles taught in Mechanism Design to optimal
design and bidding in auctions. We will start with an overview of the main theoretical
results in auction theory like the winners curse and go on to a detailed analysis of Treasury
auctions, and telecom license auctions. Finally an analysis of the Vickrey second price
auction will set the stage for subsequent module on mechanism design.
The Problem of Adverse selection vs Moral Hazard
Often interaction between two parties involves one party at a distinct advantage over
the other in terms of access to information. Information asymmetry can arise because
types are unknown (adverse selection) or the actions are unobservable (moral hazard).
An averaging across different types is inefficient. In this session we will discuss the
problem and possible soultions to overcome it.
Strategic Voting
In this module we introduce the issues presented by collective decision making through
voting like the Condorcet Paradox, the reversal paradox, and the agenda paradox. We
study the outcome of elections when we admit the possibility of voters misrepresenting
their preferences to ‘rig’ the elections in their favor.
Network Economics: Herd behavior---is it entirely irrational or does it pay to be a part of
a larger faction. The economics of compatibility and adaptability.
Matching Problem: How does one ensure strategic players are matched so that they do
not move elsewhere? How to ensure college aspirants and colleges are matched or
marriages are stable!
.
Session Plan
Lectures Topics Detailed Content Readings
Lecture 1 Introduction to Various examples of
Game Theory Strategic Decision Making
In these sessions More is better?
Why Athens lost out Dixit and Skeath,
simple examples of
strategic decision in 1996?
Goal.pdf
making will be FIFA 2006: Germany
vs. Argentina
impressed upon
…..and in corporate
as well as
warfare
understanding the
world around us
through the eyes
of game theory.
Lecture 2: Co operative Cost Allocation Problem Readings: “Fair
Games –I value. Pdf”
Rural irrigation
Fair division rules Airport charges
and different
axioms underlying
them
Co operative Value Sharing problem Shapley Value.pdf
Games –II
Team work or
Shapley value and individualism
coalition stability
Lecture 3 Non Cooperative
Games: Solution
Prisoner’s Dilemma Dixit and Skeath
Concepts –I
Cooperation
Description of a
game, Dominant
strategies
Lecture 4: Solution Concepts- Games of pure strategies Nash. Pdf
II and mixed strategies
Dixit and Skeath
Nash Equilibrium Ch 05
Goal.pdf
Lectures Topics Detailed Content Readings
Lecture 5-7: Asymmetric Handout.pdf
Information:
Used Cars and Market for
Contract Theory
Lemons
Ch 09
Adverse selection
and Moral Hazard
Auction Theory Learning to bid and win in Vickrey.pdf
an auction
Second price and Survey.pdf
first price auctions Guess and Win
Is my signature worth a
dime?
Games of Mechanism
Asymmetric Design.pdf
A Government Dilemma of
Information
public goods
Truth revelation
and Mechanism
design
Lecture 9: Stable Matching How does Naukri.comwork? Readings to be
Shaadi.com? given
Lecture 10- Strategic Voting Lets push our agendas Dixit and Skeath
11:
Atlanta 1996
Lecture 12- Behaviourial To learn more languages Networks.pdf
13 Economics and
Network Effect
Class room lecture and discussion
Teaching/
Learning
Methodology
CLOs to be assessed
AOL
Specific assessment 2
S.No. Assessment
methods/tasks Credits
Instrument* CLO-1 CLO-2 CLO-3
Assessment
Methods in
Individual Assessment: 20* 10
alignment with
1 Class Participation
learning
outcomes Group Assessment**: 25 Rubric 15 10
2 Group project assignment
Individual Assessment: Embedded
20 10 10
3 Class Tests Questions
Individual Assessment: Embedded
35 20 15
4 End Term Examination Questions
TOTAL 100
*AOL Assessment Instruments:
Class Participation: 5 marks for contributing to the discussions; 15 points for earning the points in the
games structured in the class
Embedded Questions: Quiz, Class Test, Midterm Examination, Final Examination etc.
Rubric for the Group project assignment:
Project to be given after session 2. Project will involve data analysis and application of
concepts;
Project to be submitted within a week of the End Term Exams
Rubric: Formulation of correct questions: CLO2: 10 marks
relevant testable questions; Poor 0-3; testable questions: 4-7; Good testable ones: 8-10
Analysis (CLO3) 10 marks
Quality of analysis: Poor (0-3); Average (4-7); Good 8-10
Implications: CLO2: 10 marks'
relevant implications: Poor 0-3; Average 4-6; Good 7-8; Excellent 9-10
Reading list and Required Textbook:
references Games of Strategy, 3/e Paperback – 2017
by Avinash Dixit Susan Skeath
Prepared by Faculty Name, Date and Signature:
Dr. Bappaditya Mukhopadhyay
Reviewing Faculty Name, Date & Signature:
Approved by Director GLIM Signature:
