Econ 204B  Advanced Microeconomics II // Prof. Dan Friedman
Announcements
Notes #7 on cooperative game theory is now posted below.
Advanced Microeconomic Theory II The second quarter of the Ph.D. microeconomics sequence, this course covers the fundamentals of information and decision theory, game theory and imperfect competition. There will be biweekly problem sets, a midterm and a final.
Students should own (or have regular access to) the principal text, Microeconomic Theory by MasColell, Whinston and Green (Oxford, 1995, ISBN=0195073401, denoted MWG below). They also should have at least occasional access to two secondary texts: The Analytics of Uncertainty and Information, by Hirshleifer and Riley (Cambridge University Press, 1992, denoted HR below) for information and decision theory, and Strategy: An Introduction to Game Theory, Second Edition by J. Watson (WW Norton, 2008, ISBN13=9780393929348 denoted W08 below) for game theory. It will be useful on occasion to consult the alternative texts: A Course in Microeconomic Theory by David M. Kreps (Princeton University Press, 1990) and Microeconomic Analysis, 3rd Edition, by Hal R. Varian (Norton, 1992). All these books will be on reserve in the Science Library.
Lecture notes and supplemental readings will be posted below. Each student is expected to help prepare the answer key to one problem set, which then will also be posted below.
The class meets Tu Th 11:40am – 1:15PM in 319 Kresge.
Section meets Wednesdays 3:304:30 in 499 Engineering 2.
Office hours are W 1:302:30pm in 417 Engineering 2, and by appointment.
Due Dates
PS1 due in class Monday Jan 23
Final Exam in class 47 p.m. Wednesday, March 22.
DRC accommodations. UC Santa Cruz is committed to creating an academic environment that supports its diverse student body. If you are a student with a disability who requires accommodations to achieve equal access in this course, please submit your Accommodation Authorization Letter from the Disability Resource Center (DRC) to me privately during my office hours or by appointment, preferably within the first two weeks of the quarter.
Readings // // ppfinal // MTppAK // krepsGs // syl18 // bss // notes10 // notes7 // neExist // Notes9 // MTak // ps2 // notes5 // akps1 // RevPrin // fin // notes12 // ps3 // finCS2017 // Nostes4 // Notes11 // mtcs // All // pracMT // mtppak // FinCS // 10Treas // notes6 // B+CoopGT // fo12 // akps4 // ps4 // RCs // notes2 // akppfin // AkFin // test // akps2 // duffy+feltovich // notes3 //

Notes #8: Bargaining and Coop Game Theory // Posted on Feb. 21, 2018
These notes cover (very superficially) a variety of bargaining models and a bit of cooperative game theory. See other references for deeper treatments.
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Midterm Answer Key // Posted on Feb. 17, 2018
Thanks to Naresh for preparing this answer key!
Let Dan know if you see anything unclear or incorrect.
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Notes #7 // Posted on Feb. 17, 2018
First draft of notes on evolutionary games. Not covered in your texts.
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Continuous Dilemma // Posted on Feb. 15, 2018
A repeated game in continuous time. Optional material, will not be on exams.
Some of the article is technical, but it makes two points that might be worth a thought. Cooperation rates are quite high in a finite horizon prisoner's dilemma game played out in essentially continuous time. And these can be explained by an extension of Radner's 1986 analysis, which introduces epsilon equilibria.
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Problem Set #3 // Posted on Feb. 11, 2018
Due in class Tu Feb 27.
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Answer key for MT practice problems // Posted on Feb. 11, 2018
Thanks to Ziyu and Weicheng, last year. In problem 1c, the tree assumes that the initial investment of 1 is sunk, but the algebra assumes that it was avoided. The decision is the same under either interpretation. (Thanks to Zhaoqi for spotting the inconsistency.)
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Notes #6 // Posted on Feb. 11, 2018
Second draft of notes on repeated games.
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Midterm Cheat sheet // Posted on Feb. 10, 2018
Thanks to Sepehr and David!
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Answer Key to PS 2 // Posted on Feb. 9, 2018
Answers to PS 2, thanks to David Sungho Park, lightly edited by DF.
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test file // Posted on Feb. 9, 2018
fig file doesn't download ...gives 403 error code...
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notes5 // Posted on Feb. 6, 2018
Lecture Notes on solving EFGs.
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Practice problems for midterm exam // Posted on Feb. 5, 2018
The actual exam from last year. Solutions to be posted Feb 11.
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Proof that Nash Equilibrium exists in finite NFGs. // Posted on Feb. 1, 2018
Streamlined, selfcontained proof by Adam Brandenberger. Note that it works for all sorts of games that are not finite. Here is a challenge: find a game that has no NE even in mixed strategies. Easier: what can we say about the payoff function of such a game?
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syllabus // Posted on Feb. 1, 2018
The updated course syllabus.
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Ten Treasures plus ten empirical NE counterexamples // Posted on Feb. 1, 2018
This article (later published in the AER) by Holt and Goeree gives examples where NE does a good job of predicting actual behavior, and other examples where it does not. Warning: some of the examples are carefully selected to make QRE look good.
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PS 1 Answer Key // Posted on Jan. 30, 2018
Thanks to Zhaoqi and Gregory!
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Notes #4 Solving NFGs // Posted on Jan. 30, 2018
Corrected second draft of notes, still pretty rough.
(Equation (19) had a glitch  thanks to Sila and Greg for spotting it.)Be sure to read MCWG and other texts on this topic.
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Problem Set #2 // Posted on Jan. 23, 2018
Second problem set, due in class Tues Feb 6.
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Excerpt from book on EUH // Posted on Jan. 8, 2014
Chapter 5 from Risky Curves: On the Empirical Failure of Expected Utility, by Friedman, James, Issac and Sunder (Routledge, 2014)
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