Game Theory for managers
Game theory for managers
Name of minor:
Game Theory for Managers
Programme which has the coordinating role for this minor:
Rotterdam School of Management, Erasmus University (RSM); Department of Personnel and Organisational Sciences
Other programmes which are contributing to the minor:
Content:In all societies, people interact constantly. Sometimes the interaction is cooperative, such as when business partners successfully collaborate on a project. Other times the interaction is competitive, as exemplified by two or more firms fighting for market share. In either case, the term interdependence applies, i.e. one person’s behaviour affects another person’s well-being, either positively or negatively. Game theory is one of the outstanding intellectual advances of the last decades (with Nobel prizes in 1994, 1996, 2001, 2005, 2007, 2012, 2014, and 2016) because it treats strategic interactions between a small number of players in a systematic way. Nowadays seemingly diverse fields like corporate finance and organizational design are approached in a unified way by game theory. More broadly, game theory is applied widely in most social sciences (including anthropology, business, economics, law, psychology, and sociology) and biology.
Detailed contentWeek 1: Strategies and equilibriumYou and your peers are often engaged in a strategic environment in which you have to think hard about what other players are doing in order to decide what is best for you, knowing that the other players are going through the same difficulties. Strategic environments are referred to as games. The ingredients of a game are delineated and illustrated with insights regarding bargaining, strategic delegation, and agenda control.Week 2: Information structure, i.e. taking turns in the darkMany strategic settings are interesting because a player knows something that other players do not observe. Information sets are introduced to capture informational differences between players and their impact on behaviour is addressed. Week 3: Incomplete information, i.e. I know something you don’t knowThere are many settings in which people have some information only known to them. The player lacking the information experiences therefore uncertainty about the other player. One of the behavioural implications is that it may be attractive for players to create (endogenously) uncertainty about their course of action, i.e. a mixed strategy.Week 4: Contract theoryThe composition and strength of incentives used in an organization has a large impact on the selection, retention, and of personnel. The developed game theoretic concepts are applied to address the design of attractive contracts. Week 5: Business is war, and business is peaceTo find a way of bringing together the two seemingly opposing perspectives of competition (‘Business is war’) and cooperation (‘Business is peace’), we turn to repeated games. Players in a repeated game may overcome the inefficient one-period prisoners dilemma outcome. These ideas are applied to address cartel stability, the transaction platform eBay, the cooperation between young and old generations within enterprises and society, reputation, and empowerment. However, there are often various stable outcomes, i.e. war as well as peace are equilibrium outcomes. It implies a need for coordination. Various ways to establish coordination are formulated. Bringing complementarities in organizations to value has the same logic.Week 6: Beliefs and Perfect Bayesian Equilibrium, i.e. what you do tells me who you areWhen players have private information and move sequentially, then players may learn the hidden information by the choices others make. Classic examples are the choice of education to signal ability and establishing a reputation by the choice of investment. Even costless actions, i.e. cheap talk, may be informative to improve coordination. The notion of subgame perfection is broadened to sequential rationality to study these games.Week 7 and 8: Reaction functions and Strategy typology, i.e. structuring the market to your own interestA strategy typology will be developed to cover strategic aspects of many topics in finance (equity participations, limited liability, deep pocket), marketing (product differentiation, advertising, compatibility, assortment), organization (delegation, royalties/licenses, most-favored-customer-clauses, contracts), technology (capacity, spillovers, dynamic economies of scale), and industry structure (fragmentation, dual structures, leadership).Week 9: Cooperative game theoryCooperative game theory is a method to handle situations where the way in which players interact is unstructured. It highlights only the outcome of interactions. This requires a different set of concepts from those used in non-cooperative game theory. Various applications will be highlighted, such as power, cost allocation, coalitional formation, and matching mechanisms.Week 10: Exam preparation
Learning objectives:This course will examine the basic ideas of game theory and apply them to all fields in management. Themes and patterns are identified that are common to situations in all fields of management (accounting, finance, marketing, organization, strategy, supply chains, technology), like capacity to think ahead, grasp how others think and behave, commitments, threats and promises, contract design, strategies of signaling, and the emergence of cooperation. In this course, we aim to achieve therefore three goals: 1 Provide insight in strategic management situations, using a game theoretic perspective; 2 Improve your management thinking by using game theory; 3 Enable you to develop better general management strategies.
:Concepts are developed incrementally to highlight their logic, while no mathematical skills are required beyond the high school level. There is no prior knowledge required. Students from the entire Erasmus University Rotterdam, and elsewhere, are welcome.
Maximum number of students that can participate:80
Minimum number of students that can participate:
Contact hours:6 hours each week
Self study hour:34 each week
Grading1 Assignments (8) and presentation (1) (36%) Assignments and presentation are made by teams consisting of 2-3 students. 2 Written test (34%) Open questions. 3 Paper (30%) Students are asked to write a paper (i.e. clearly motivated and formulated research question, literature review (5-10 scientific journal / book references), game theoretic analysis, and conclusion).
- Topic: free.
- Methodology: game theory.
- Number of words: maximum 4000 words.
- Language: Dutch or English.
- Grading criteria will be posted on the blackboard site of the course.
- Deadline paper: November 10, 2017, noon (Missing the deadline will result in a grade not exceeding 6);
- Submission: Hard copy to office T10-28 (Secretary) or T10-56 (my office), or to firstname.lastname@example.org.
Contact person:Name: George Hendrikse