Monday, January 25, 2010

Econ 539-Public Policy Analysis: Game Theory

A big part of the class will be spent studying how and when markets fail and what (if any) are the appropriate policy responses. Though it may seem unusual for a public policy class, an important way that markets can fail is if there is strategic behavior. This is perhaps the most well-known result from game theory: in situations where strategic behavior is important, individually rational, self-interested behavior may not yield an efficient outcome.

For the purposes of this class, we will look closely at only the basic normal form games and see how this result comes about. I will also talk about sequential and repeated games in general and what additional important results come from these situations.

As examples, we will talk about the incentives of Wall Street banks and have a look at this Bob Frank column in the New York Times. We will also discuss another interesting example of game theory at work in my little take on unsigned intersections. (Which reminds me, I haven't been keeping up on the Economist's Notebook thing lately - I'll try to do more)

1 comment:

OregonGuy said...

It is possible that the statistical analysis of Rational Expectations isn't important to you, since so much of rational expectations can be explained by random noise.

It is also possible that game theory only helps to describe normative theories that can't find support from the objective observation of empirical data.

(And repetitive renditions of the same game theory can't be examined for independence, so any value for significance that is attempted is null.)

Assuming homogeniety in the outlined study of "game theory" probably produces a high value of heteroskedastasticity. Prolly approaches 1. Clever stuff.