Syllabus

Course Meeting Times

Lectures: 2 sessions / week, 1.5 hours / session

Recitations: 1 session / week, 1.5 hours / session

Prerequisites

14.121 Microeconomic Theory I, 14.122Microeconomic Theory IIThis course assumes knowledge of Game Theory at the level of 14.122 Microeconomic Theory II and knowledge of consumer theory and optimization.

Texts

The instructor's notes are used as the main text for the course. However, the following textbooks are also useful.

  • Buy at Amazon Savage, Leonard J. The Foundations of Statistics. Dover Publications, 1972. ISBN: 9780486623498. [Preview with Google Books]
  • Buy at Amazon Mas-Colell, Andreu, Michael D. Whinston, and Jerry R. Green. Microeconomic Theory. Oxford University Press, 1995. ISBN: 9780195073409.
  • Buy at Amazon Kreps, David M. Microeconomic Foundations I: Choice and Competitive Markets. Princeton University Press, 2012. ISBN: 9780691155838. [Preview with Google Books]

Grading

The grading will be based on five problem sets (40%) and a final exam (60%). In each problem set, there will be one problem that is to be graded, and several other problems that are not for a grade. I encourage you to work on the problem sets together, but you need to write your solution to the problem for a grade by yourself. Although the other problems are not for a grade, I encourage you to work on them and submit your solutions for feedback.

See the Assignments section

Topics Outline

  • Basics (Choice, Preference, Utility, and Representation)
  • Decision under Risk (Von Neumann and Morgenstern Representation)
  • Topics on Risk: Risk-aversion, Stochastic Dominance
  • Decision under Uncertainty (Savage's Subjective Expected Utility Theory)
  • Critiques of Expected Utility Theory
  • Prospect Theory
  • Costly Contemplation Model—Rational Inattention
  • Preference for Flexibility, Temptation & Self Control
  • Hyperbolic Discounting with Application to Bargaining and Investment
  • Other Applications with Non-traditional Assumptions