Material Detail

This video was recorded at ECON 159 - Game Theory. We consider games in which players move sequentially rather than simultaneously, starting with a game involving a borrower and a lender. We analyze the game using "backward induction." The game features moral hazard: the borrower will not repay a large loan. We discuss possible remedies for this kind of problem. One remedy involves incentive design: writing contracts that give the borrower an incentive to repay. Another involves commitment strategies; in this case providing collateral. We consider other commitment strategies such as burning boats. But the key lesson of the day is the idea of backward induction. Reading assignment: Strategies and Games: Theory And Practice. (Dutta): Chapter 11 Strategy: An Introduction to Game Theory. (Watson): Chapter 2 Resources: Blackboard Notes Lecture 13[PDF]

Disciplines:

• Mathematics and Statistics  / Mathematics  / Discrete Mathematics  / Game Theory