Topics in Economic Theory

Semester and Year Offered: 6th Semester, 3rd year

Course Coordinator and Team: Taposik Banerjee

Email of course coordinator: taposik[at]aud[dot]ac[dot]in

Pre-requisites: Microeconomics courses at the undergraduate level.

Aim: This is an optional course for last semester undergraduate students. The course was designed with the intention to prepare and inspire students for higher studies in economics. The course has three components, namely, Choice Theory, Game Theory and Uncertainty, which would help the students to understand the nature of modern economic institutions. The three components are considered to be integral parts of modern economic analysis. The course introduces the basic concepts of the three above mentioned components such that the students may use them to solve simple problems.

Course Outcomes:

On successful completion of this course students will be able to:

1. Provide a rational explanation of behaviour of the individuals in an economy.
2. Use the framework that economists use to analyse choices made by individuals and explain how these choices may also serve the social interest.
3. Solve simple games using various techniques.
4. Discuss the way in which game theoretic models can be applied to a variety of real-world scenarios.
5. Develop and sustain an argument using the concepts that are commonly used by economists.
6. Analyse simple economic problems in a game theoretic framework.

Brief description of modules/ Main modules:

The course introduces students to choice theory, game theory and the theory of uncertainty. The course introduces the properties of binary relations and preferences that a rational individual may have. It introduces the concepts of revealed preference theory and that of rationalization. It introduces the concept of static games and dynamic games with complete information along with their application in economics. It introduces the concept of a Nash-equilibrium with pure strategies and mixed strategies. It helps students to understand a simple lottery and the concepts of risk neutral, risk averse and risk seeking behavior. Following would be the brief outline.

1. Introduction to choice theory

• Binary relations and preferences
• Introduction to revealed preference theory
• Concept of rationalization

2. Introduction to game theory

• Static Games of Complete Information along with some applications in economics
• Mixed Strategies and Existence of Equilibrium
• Dynamic Games of Complete Information
• Two-Stage Games of Complete but Imperfect Information

3. Introduction to the theory of uncertainty

• Simple lottery
• Von Neumann-Morgenstern expected utility
• Concepts of risk neutral, risk averse and risk seeking behavior

Assessment Details with weights:

Three class tests with following weights: Test 1 (25%), Test 2 (35%) and Test 3 (40%).

Reading List:

• Mukherji, A. and Guha, S. (2011), Mathematical Methods and Economic Theory, Oxford University Press, Delhi,
• Varian, Hall R.,(1990), Intermediate Microeconomics, W.W. Norton & Company, New York, London.
• Gibbons, R., A Primer In Game Theory
• Osborne, J. M., An Introduction to Game Theory
• Sen, A., 1970. Collective Choice and Social Welfare, Holden-Day.
• Tarski, A, 1995. Introduction to Logic, Dover Publications.

ADDITIONAL REFERENCE:

Jehle & Renne, Advanced Microeconomic Theory, Pearson Education, India