This course provides an introduction to strategic thinking and game theory as powerful tools for managerial decision-making. We will apply game theory to solve management problems and to determine optimal courses of action for decision makers. Game Theory is a structured way of analyzing strategic interactive situations. It provides the basics to the understanding of market competition among few firms, the design of incentive contracts, bidding at auctions, bargaining, and other similar interactive decision problems central to economics and business. 

This course will focus on games of complete/perfect information, and cover topics and strategic problems like competition and collusion, market structure, timing and commitment, bargaining and negotiation, cooperation and dilemmas, coordination problems, and finite and infinite horizons.

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.

Through making decisions in classroom experiments, at the end of each meeting, 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 decision situations (experimental instructions), anonymized data sets containing the decisions of participants, and a number of questions on each experiment will be posted online as a weekly assignment. The assignment questions guide you in the analysis of the games and data. Analyzing the games 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 selected to present their assignment question analysis. Presentations are individual (and individually marked), 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. Slides will be made accessible after class. Understanding the game theoretical analysis will give you more insight into strategic behavior, and improve your analytical skills.

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

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

Written assignments (2 x 10%)

Two weekly assignments are to be handed-in by all students of the course in written form and will be marked. They will be announced by the lecturer.

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 require to apply knowledge to new games and situations, similar to the regular weekly homework assignments. Students may 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 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.

(If the final exam needs to be held in distance-mode, some deviations may apply that can additionally or substitutionally include: multiple-choice testing, open essay questions and/ or oral examination. The form of the final exam will be communicated during class.)

Resources available to students consist of:

• Classroom experiment instructions – will be provided in each class
• Collected decision data – will be provided online after experiments
• Lecture slides – will be provided online after class

There is no prescribed/required textbook, because pricing for textbooks is outrageous and all the necessary information can also be found online in various forms. However, the textbook that comes closest to this course in terms of content and level is:

Avinash K. Dixit, Susan Skeath, and David Reiley, Games of Strategy. 3rd edition. W.W. Norton and Company, 2010. http://www.amazon.com/dp/0393117510/ You can use any version of this textbook.

Other suggested books include:

• Charles A. Holt: Market, Games & Strategic Behavior. Addison Wesley, 2006. http://www.amazon.com/dp/0321419316/
• Avinash K. Dixit and Barry J. Nalebuff: Thinking Strategically: The Competitive Edge in Business, Politics, and Everyday Life. W. W. Norton & Company, 1993. http://www.amazon.com/dp/0393310353/
• Adam C. Brandenburger and Barry J. Nalebuff: Co-Opetition : A Revolution Mindset That Combines Competition and Cooperation : The Game Theory Strategy That's Changing the Game of Business. Doubleday Business, 1994. http://www.amazon.com/dp/0385479506/
• Tim Harford: The Undercover Economist: Exposing Why the Rich Are Rich, the Poor Are Poor--and Why You Can Never Buy a Decent Used Car! Random House, 2007. http://www.amazon.com/dp/0345494016/