Behavior and Decisions

This course introduces students to the basic concepts and tools of Game Theory and their applications to real-life situations. The course starts with archetypal examples of games showcasing elementary strategic aspects and then introduces a general formulation of games along with different solution concepts. The techniques shed light on several aspects of strategic behavior such as cooperation, reasoning in dynamic situations, and uncertainty. Students will be able to analyze real-world scenarios, frame them in terms of the tools discussed, and draw conclusions by applying solution concepts. The course assumes no prior knowledge of economics and will use only a little math.

This course covers the basics of Experimental Economics and its application to a wide range of topics, such as market design, decision-making under different circumstances, auctions, contract theory, and public goods provision. The goal is to provide a thorough understanding of the principles of experimental design, implementation, and data analysis. The course combines lectures, discussions, in-class practices, off-site lab work (i.e. field trip), and individual research projects and, in particular, students have the opportunity to design and implement their experimental works.

People are complicated. They pay large sums for gym memberships that they studiously avoid using. They gladly accept monetary gifts but refuse the same gifts if accepting means someone else will get more. They perceive patterns that don’t exist and miss the patterns that do exist. They make plans to ‘do that task tomorrow’ and then postpone it for months. They take out exorbitant insurance policies on vacuum cleaners. They choose not to learn the results of medical tests that could vitally improve their decision-making. In short, human behavior is filled with departures from the most fundamental assumption in economics, that people rationally pursue their own self-interest. If we want to better understand the world, if we want to make better predictions and better policy prescriptions, and if we want to be better economists, then we need to understand the psychology of human behavior. That is what Behavioral Economics is about.

This course is focused on the effect of uncertainty on individual decisions, on the design of optimal contracts, and on strategic interactions. The course is divided into three blocks. The first one focuses on the properties of the expected utility model and of risk aversion and studies two fundamental applications at the core of macroeconomics and finance. The second block studies problems of information asymmetry in bilateral contracting. The third block analyzes the effect of uncertainty on strategic interactions, such as auctions and communication games.

This course studies advanced application of Game Theory, with a focus on the role of incomplete information in strategic interactions. For example, buyers and sellers are typically differentially informed about the quality, quantity, or value of the traded goods. Their decisions will then depend both on their conjectures of the other participants’ choices as well as the best available information about the value of their outcomes. The course introduces the mathematical models of simultaneous optimization from Game Theory that are used to understand interactive decision-making. It then covers seminal stylistic models of informational asymmetries and discusses applications in biology, computer science, engineering, and finance. The course utilizes a combination of formal approaches (theorems, proofs, problem-solving) and discussions of recent journal articles.

Labor economics is the study of how labor markets work. We will investigate numerous aspects of the labor market, including the supply of and demand for labor, labor-market equilibrium, human capital, unemployment and job search, labor unions, compensating wage differentials, discrimination and immigration. We will use theory to understand facts and we will use facts to test and inform theory.