MATH4321 – Game Theory

Course outline - Spring 2018

1. Instructor
Name: Professor Yue Kuen KWOK
Contact details: Office Room 3445, Tel: 2358-7418; E-mail: maykwok@ust.hk

2. Teaching assistant
Mr Qiuqi Wang, E-mail: qwangan@connect.ust.hk

3. Meeting times and Venue

Lectures
Date / time: Monday and Wednesday (10:30am - 11:50am)
Venue: LT G

4. Course description
Credit points: 3
Zero-sum games; saddle points; strategic equilibrium; bi-matrix games under mixed
strategies; minimax theorem; Nash equilibrium; games with continuum of strategies;
economic competition models; auctions; duel games; power indexes; bargaining games

Prerequisites
MATH 2010 OR MATH 2011 OR MATH 2021 OR MATH 2023 OR MATH 3043)
AND (MATH 2111 OR MATH 2121 OR MATH 2131 OR MATH 2350)

Exclusion: SOSC 1410

5. Intended learning outcomes

Upon successful completion of this course, students should be able to understand the
following topics:
 Zero-sum games; saddle points;
 Matrix games under mixed strategies;
 Games with a continuum of strategies; Economic competition models;
 Auctions and duel games;
 Power indexes; bargaining games
In addition, students would also acquire the following abilities:
1. Appreciate how to use quantitative tools to analyze issues related to game theory.
2. Recognize the importance of applying rigorous and numerate approach to analyze and
solve problem in game theory.
3. Apply mathematical modeling and analytic proofs to describe and explain phenomena
in game theory.
4. Communicate the solutions of mathematical models of game theory using
mathematical terminology and English language.
6. Assessment scheme
80-minute test; Date: March 26 (Monday) during lecture hour 40%
120-minute final examination 60%
4 sets of homework 0%

7. Student Learning Resources

Lecture Notes: notes and other learning materials can be downloaded from the course home page:
http://www.math.ust.hk/~maykwok/MATH4321.htm
Reference texts
 S. Jadelis, “Game Theory: An Introduction,” Princeton University Press (2013).
 E.N. Barron, Game Theory: An Introduction, second edition, Wiley (2013)
(can be downloaded from HKUST online Library).
 M.J. Osborne, An introduction to Game Theory, Oxford University Press (2004).
(HKUST Library has a hard copy, some sample chapters can be found on internet).
 E. Rasmusen, Games and Information: An Introduction to Game Theory, fourth
edition, Cambridge University Press (2007).
(e-copy is available on internet).

8. Teaching and Learning Activities

Scheduled activities: 3 hours of lecture

9. Course Schedule

Week 1 – Week 3
1. Strategies and equilibriums of games
1.1 Definitions and examples
 Essential elements of a game
 Game matrix and game tree representation of a game
 Expected payoff and rational decision making
 Examples: Nim, Evens or Odds game, Russian roulette
1.2 Saddle points and dominant-strategy equilibriums
 Value of a zero sum game under pure strategies
 Characterization of saddle points
1.3 Mixed strategies for zero sum games
 Expected payoff under mixed strategies
 Von Neumann minimax theorem
 Computational procedure and graphical solution
 Invertible matrix games
 Symmetric games: Rock-paper-scissors

Week 4 – Week 6
2. Nonzero sum games and Nash equilibrium
2.1 Dominant-strategy equilibrium and Nash equilibrium models
 Dominated and dominant strategies
 Iterated dominance: Battle of the Bismark Sea
 Characterization of Nash equilibrium
 Examples: Prisoner’s dilemma; Cuban crisis; battle of sexes; coordination games
2.2 Mixed strategies
 Matching pennies and stochastic steady state profile
 Mixed strategy Nash equilibrium
  Best response functions
 Equality of payoff theorem (indifference principle)
 Safety values

Week 7 – Week 9
3. Games with a continuum of strategies
3.1 Nash equilibrium of N-person games
 Calculus approach of finding Nash equilibrium
 Electoral competition
 Buy-it-now price of an item
 Tragedy of the commons
3.2 Economic applications
 Cournot model
 Stackelberg model
3.3 Auctions
 Why a middleman is needed?
 Revenue equivalence theorem
 Application to auctions to economic competition model
3.4 Duel games
 Nature of the duel games
 Dominance and backward induction
 Discrete number of steps
 Continuous models: noisy duel and silent duel

Week 10 – Week 12
4. Coalitions and bargaining
4.1 Power indexes in coalitions
 Weighted voting games
 Shapley-Shubik index and Banzhaf index
 Probabilistic characterization of power indexes
4.2 Bargaining games
 Pareto-optimal boundary and status quo payoff point
 Nash model with security point