BUS-G 752 Information Economics

• 7 weeks
• 1.5 credits
• Prerequisite(s): None

This course is designed as an introduction to theories and applications of games with asymmetric information. We start with an introduction to the modeling of such games and then introduce the fundamental problem of adverse selection. We then analyze the most popular communication games including signaling games, disclosure games, and cheap talk games. We then consider the mechanism design approach. We finish with applications to auctions and to various aspects of reputation.

Outline

A. Bayesian Games. Introduction and equilibrium concepts.

B. Adverse Selection. Hidden type vs hidden action, market unraveling.

B. Disclosure Games. Good news and bad news, full disclosure, strategic modesty.

C. Signaling Games. Single-crossing, multiple equilibria, refinements.

D. Cheap Talk Games. Coarse communication, multidimensional cheap talk, delegation.

E. Mechanism Design. Revelation principle, participation and incentive compatibility constraints.

F. Auctions. Private value and common value auctions, auction formats, buyer and seller strategies.

G. Reputation. Cooperation, career concerns, reputation mechanisms.

References

Drew Fudenberg and Jean Tirole, Game Theory, MIT Press

Eric Rasmusen, Games and Information, Blackwell Publishers.