Through this course, students will learn how the use of microeconomic and game theoretic tools can help us to understand possible unintended consequences of legal rules, policies and institutions. Through recognition of these consequences, more effective policies can be designed.

This course examines novel ways in which economics studies changes in welfare. In doing so, works will be covered using behavioral, experimental, empirical, and theoretical techniques. Behavioral and experimental economics are used to examine the relationship between welfare and non-standard preferences such as time inconsistency, risk aversion, and other-regarding preferences. Topics cover classic issues with multi-player cooperation (e.g. public goods games and common pool resources), as well as introductions to contemporaneous research areas in economics such as two-sided matching markets (e.g. school-choice) and policies that exploit behavioral paradoxes in order to increase welfare (e.g. ``Nudging’’).

Course schedule:

Class 1: Course introduction, Nash Equilibrium, Prisoner’s Dilemma, coordination games

Class 2: Public goods, volunteer’s dilemma, common pool resources, minimum effort game, and Stag Hunt

Class 3: Risk, Prospect Theory, objective versus subjective uncertainty (e.g. Allais and Ellsberg Paradox)

Class 4: Other regarding preferences and time preferences

Class 5: Response time and competitiveness

Class 6: Market successes and failures (e.g. “Lemons” and the Endowment Effect)

Class 7: Influencing behavior: incentives and nudges

Class 8: Two-sided matching markets

Class 9: Z-tree tutorial (program for designing and running laboratory experiments)

Class 10: Final exam

Grade breakdown: Participation: 20%; Final: 80%

The participation grade is determined by the quantity and quality of your interactions during the class time. There is no “make-up” for these points. 2 hour final on the last day of the course (April 27th from 12-14).

Readings:

No textbook is required. The course content is comprised of academic journal articles. The following books are optional but may be helpful for further readings:

Markets, games & strategic behavior, C. A. Holt, Pearson Addison Wesley, 2007.

Behavioral game theory: Experiments in strategic interaction. C. Camerer. Princeton University Press, 2003.

The Handbook of Experimental Economics. J. H. Kagel and A. E. Roth, Princeton University Press, 1997.

Two-sided Matching: A study in game-theoretic modeling and analysis. Roth, A. E. and M. Sotomayor. Cambridge University Press, 1985.