INDIAN INSTITUTE OF MANAGEMENT KOZHIKODE

Post Graduate Programme in Management

Course Outline

Course Code and Course Title PG2E-005: Game Theory

Course type Elective
Pre-requisites (if any) NIL
Course Credit 3
Total No. of Sessions 30
Session Duration 60 minutes
Term IV
Year and Batch 2nd Year 2016-17, PGP19
Sections (if any) -

Instructor(s) Dr. Kausik Gangopadhyay and Dr. Rudra

Sensarma
Contact Details Dr. Kausik Gangopadhyay: 0495-2809118,
[email protected]
Dr. Rudra Sensarma: 0495-2809423,
[email protected]
Office Faculty Block 1, Room No. 18
Consultation Hours Thursday, 5 to 6 PM

Introduction

Game theory is a study of multi-person interactions in which a players payoff depends on what
others do. The purpose of game theory is to predict how a game might be played. Given a
problem, with a clear specification of the players (e.g.; individuals, firms, nations), the rules of
the game (e.g., who moves in what order), the strategies available to the players (e.g., cooperate
or defect; enter or do not enter a market), and the payoffs of the players under each scenario,
game theory predicts what each player would do.

Game theory has many applications in management. Here is partial list of applications covering
marketing, finance, strategy and general management: the problem of cooperation (as in
Prisoners Dilemma game); bargaining between players (e.g., labor-management, buyer-
seller); auction (e.g., auction of wireless spectrum or public projects); pricing by competing
firms (e.g., duopoly, OPEC); entry deterrence; M&A; principal- agent relationships; signaling
of product quality; committee decision making; spatial competition. In addition, Game Theory
helps understand key issues of economic development. This course will draw upon many of
these applications throughout the course.

For additional applications, go to http://www.gametheory.net/net/links/consulting.html and

then Business strategy consulting firms using game theory: Also see
http://www.economywatch.com/business/business-management-theory.html as well as
somewhat more technical http://www.stanford.edu/~ferhun/paper/GT.pdf
Learning Outcomes/Course Objectives

At the end of this course, the students would be able to

model various tactical and strategic decisions using Game-theoretic modelling
techniques
utilise Game Theory to address various management decisions and design mechanisms

Textbooks and Learning Materials

Text Book(s)

Games of Strategy by Avinash Dixit, David H. Reiley jr., and Susan Skeath, 2009,
Third Edition, Norton [D]
Games in Economic Development by Bruce Wydick, 2008, Cambridge University
Press, ISBN 978-0-521-68715-7 [W]

Reference Book(s)

Game Theory for Applied Economists, Robert Gibbons, 1992, Princeton University Press.

Additional Reading(s)

In addition, electronic copies of relevant reading materials will be distributed as and when
required.

Technology and Software (if any)

NIL

Other Resources (Journals, Internet Websites) (if any)

Pedagogy Learning Process

The pedagogy consists of lectures, games and in-class presentation. The instructor expect the
students to participate actively in the class. Students are expected to read the textbooks or other
assigned readings outside of class and participate in the critical evaluation of the material
through class discussion.

Evaluation Components/Assessment of Student Learning

Evaluation Component Percentage Description

/Assessment Tool
Midterm + Quiz 30% These components are required to
check and evaluate the students
End term + Surprise Quiz 40% understanding of concepts and
application of appropriate tools and
techniques
Assignments/Projects 30% Students are expected to work in teams
for projects and assignments, as it
would provide them opportunities to
explore diverse perspectives for a
business problem related to operations.
Session Plan

Session Module Topic Chapter No. /

Reading material
/ Cases
1 Games of Pure Games for modelling human [D] Ch. 1, 2
Strategy behaviour [W] Ch. 1
23 Sequential Move Game [D] Ch. 3, pp. 47-
62, 71-74.
[W] pp. 29-32
45 Nash equilibrium, Dominance, [D] Ch. 34
Iterated Elimination of Dominated [W] Ch. 2, pp. 19-
Strategies, Best - Response Analysis, 24.
Minimax method for Zero - sum game
Coordination Games, Multiple
Equilibria, Focal point
The Battle of the Sexes Game, Stag
Hunt (or Assurance) Game, The
Game of Chicken (or Hawk Dove)

6 Development Traps & Coordination [W] Ch. 3

Games,
The role of planning in a coordination
game,
Education as a coordination game,
Coordination Failure and
Globalization
78 Rationalizability, Combining [D] Ch. 56
Sequential & Simul Move Games Gibbons, pp. 73-
Application: Bank Runs, 75.
9 Games of Simultaneous - Move Games with [D] Ch. 7 and
Mixed Strategy Mixed Strategies Probability & Appendix
Expected Value
10 Simultaneous - Move Games with [D] Ch. 8, pp.262-
Mixed Strategies 285
1112 The Prisoner's Dilemma & Repeated [D] Ch. 11
Game
1314 Bargaining Application of Game Theory: [D] Ch. 18,
Bargaining, A brief discussion on Gibbons:
discount factor Sequential
Bargaining, pp. 69-
71.
Mid Term Examination
15 Issues in Rural Poverty, Economic [W] Ch. 4
Economic Development & the Environment
Development
16 Risk, Solidarity & Reciprocity, Risk [W] Ch. 5
sharing in Present Cultures &
Repeated Games, Insurance in Patron
- Client Relationships
Exploitation in Patron - Client
Relationships, Peasant Solidarity
Networks
17 Savings, Credit & Micro finance [W] Ch. 7
 Banks & Savings, How the Lending
Game is solved in Wealthy
Economics, How the Lending Game
is solved in Developing Economics
18 Property Rights, Governance and [W] Ch. 9
Corruption
1920 Uncertainty and Uncertainty and Information [D] Ch. 9
Information
2122 Strategic Moves: Credibility, [D] Ch. 9 and 10.
Commitment, Threats and Promises,
Schelling: Enforcement,
Communication & Strategic Moves
2324 Evolutionary Evolutionary Games, Social Capital, [D] Ch. 13
Games Game - theoretic role of Religion
2526 Mechanism Bidding Strategy & Auction Design Ch. 17
Design
2728 Brinkmanship Ch. 15
2930 Review Review of the Course and Student Not Applicable
Presentations
End Term Examination

Additional Instructions (if any)

a. Group formation: Project work are supposed to be carried out in groups. You need to
form teams with a maximum of four members. Details regarding the same would be
shared during the class. Please note that the students are supposed to remember their
group no./name and explicitly mentioned.
b. Project Work: A real life problem has to be chosen and the concepts learnt should be
applied, necessary data should be collected and analysed to support the concepts, which
should be documented and presented in the form of a project report/power point
presentation. More details will be provided during the class hours. Deadline for
submission: Last day of the class