Managerial Economics applies economics and decision sciences to solve management problems and to determine optimal courses of action for decision makers. This course provides an introduction to powerful tools and approaches for managerial decision-making.

In particular, the course will cover the fundamentals of economic and game-theoretical analysis as it applies to managerial decision-making problems. Game Theory is a structured way of analyzing strategic interactive situations. It is basic to the understanding of market competition among large firms, the designing of incentive contracts, bidding at auctions, bargaining, and other similar problems central to economics and business. The course covers different types of games and solution concepts. It is organized around applications: markets, negotiations, cooperation, coordination, auctions, etc.

On successful completion of the course, you should be able to:

• demonstrate a basic understanding of game theoretical tools and solution concepts,
• analyze strategic managerial decision situations and the incentives of actors therein, and to derive predictions about likely economic behavior,
• evaluate and analyze data of actual decisions made in strategic situations, and derive conclusions,
• present and discuss findings from that strategic analysis and evaluation of actual decisions, and
• work collaboratively to complete a task.

Full attendance at all meetings is expected. Students are allowed to miss a maximum of 20%. If you cannot attend a lecture due to exceptional/unforeseeable circumstances, please contact the lecturer.

Through making decisions in classroom experiments, you will experience many different managerial decision situations first hand. This trains your empathy, strategic thinking, and social interaction skills.

After the lecture, descriptions of the situations (experimental instructions), anonymized data sets containing the decisions of participants, and a number of questions on each experiment will be posted online. The questions guide you in the analysis of the situations and data. Analyzing the situations and your own decisions with formal and informal tools lets you practice logical thinking, sharpens your economic intuition, and improves your knowledge about managerial and economic behavior. Analysis can be done individually or in groups of up to 3 people.

At the beginning of each class, a number of students will be (more or less randomly) selected to present their analysis. Presentations are individual (and individually marked), so each student is expected to be able to present on each question. Presenting your results in class improves your structuring and communication skills.

Presentations are followed by (moderated) group discussions involving all students in class. You will learn from each other and train your argumentation and discussion skills.

Necessary game theoretical background will be provided to you in lecture form. Lecture slides will be posted online after class. Understanding the economic theory will give you more insight into strategic behavior, and improve your analytical skills.

Assignments, oral presentations and participation in group discussions (30%)

Assignments will be given in each class. At the beginning of each class, several students will be asked to analyze the strategic situations they experienced at the end of the last class, and to discuss the actual behavior of students based on collected decision data. This is followed by a group discussion. Marking is done throughout the semester based on the content and style of the presentation and discussion.

Written assignments (2 x 10%)

Two assignments will be marked in written form. This will be announced by the lecturer when giving out the assignment.

Final exam (50%)

The final exam will cover the entire course. The exam will include some questions which test pure knowledge, and other questions which will require students to apply knowledge to new situations, very similar to the regular homework assignments. In particular, students will be provided with a description of a strategic situation, and a summary of decision data collected in an experiment on this situation. Students will be asked to summarize the essential strategic properties of the situation, to describe the individual incentives of players, to make predictions about behavior based on justified assumptions, to compare those predictions with the decision data, and to discuss potential discrepancies. Marking in the final exam will be based on proficiency in applying game-theoretic tools, as well as logic and justification of arguments.

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