Thinking Strategically

Thinking Strategically

HONORS 259L Fall, 2018

Current Reading List/Syllabus (Topics may be added)

Professor Daniel R. Vincent

Tydings 4128B

301-405-3485

dvincent@umd.edu

Office Hours: Thursday, 12:30-1:45

Required Text

The text for the class is The Art of Strategy, by Avinash Dixit and Barry Nalebuff. Towards the end of the course, I will also make use of Alvin Roth, Who Gets What and Why, 2016, Mariner Books, 2016, ISBN 978-0-544-70528-9 and Dan Ariely, Predictably Irrational, 2010. We will likely refer to other readings as the course progresses. A natural resource might by Thomas Schelling, The Strategy of Conflict, for example. Since no one textbook covers all the issue I wish to discuss, I also will try to point you to brief online sources in order to save you from having to buy too many texts.

Course Description

This course is designed to use the tools of decision theory and game theory to understand economic, political and social problems and issues. Among other topics, it will examine the fallacy of sunk costs; techniques to determine the credibility of threats and promises; the importance of identifying dominated strategies; the potential value of randomizing strategies; the importance of knowing how much rivals know before choosing a strategy. We will also examine some case studies such as using auction theory and matching theory in the design of markets. While mathematical skills such as calculus and algebra will increase the student�s enjoyment of the course, these are not required. What is required is a willingness to think formally and analytically about strategic problems and a curious mind.

Web Site

The Web page for this course is http://econweb.umd.edu/~vincent/honors/HNROL.html. You will be able to find the problem sets, a link to the Department of Economics Web page. This is a fairly new course so I am afraid there are only a few old exams or assignments available. Please let me know if you find any bugs in the page and please send me suggestions on ways to make it more useful.

Assignments include problem sets, a mid-term and final exam, and an applied project with a class presentation component.

Lectures will be given in TYD (Tydings), 1114 on Tues-Thurs at 2:00 (Find it here: http://seamster.cs.umd.edu:8090/map/index.html#). The first lecture is Tuesday, August 28.

Course Outline:

1. Introduction and The Various Notions of Costs and their Role In Decision-making:

o Opportunity Costs, Fixed Costs, Variable Costs and Marginal Costs

o The Sunk Cost Fallacy.

Some short online references:

http://en.wikipedia.org/wiki/Opportunity_cost

http://www.economist.com/RESEARCH/ECONOMICS/searchActionTerms.cfm?query=opportunity+cost

http://www.economist.com/RESEARCH/ECONOMICS/searchActionTerms.cfm?query=marginal+cost

https://mindyourdecisions.com/blog/2012/09/06/9-bad-decisions-people-make-because-of-the-sunk-cost-fallacy/

http://en.wikipedia.org/wiki/Sunk_costs

http://tvtropes.org/pmwiki/pmwiki.php/Main/SunkCostFallacy

2. Dynamic Decision-making

Deciding at the margin.

Decision Trees

Back to Front Reasoning and playing games against your future self.

Art of Strategy, Chapter 2.

3. Dynamic Games

Back to Front Reasoning again.

Threats and Promises � When are they credible?

Examples

Art of Strategy, Chapters 2 and 7.

4. Strategies and Games

Descriptions and Examples

Dominant and Dominated Strategies

The Prisoners� Dilemma

Art of Strategy, Chapters 3 and 4.

5. Random Behavior � Why It Can Help to Be Unpredictable.

Art of Strategy, Chapter 5

6. Information and Common Knowledge: Do you know that he knows that you know that.....?

An email game of common knowledge

Common knowledge and the dotted tribe.

Art of Strategy, Chapter 8.

7. Auctions and the design of trading institutions.

The different types of auctions

Optimal bidding behavior

Revenue Equivalence

The winner�s curse

Art of Strategy, Chapter 10.

8. Matching Algorithms and Their Uses.

One and Two-sided Matching

The Deferred Acceptance Algorithm

Top Trading Cycles

Kidney exchanges

9. Behavioral Economics.

Grading: Your grade will be determined as follows:

5(or 6) Problem Sets 30 points

Midterm Score 50 points

Assignment 50 points

Final exam 70 points

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Total 200 points

Project Rubric: I would like you to find a situation, event or example of any aspect of daily life that involves strategic thinking. Examples include scenes from a film, situations in a sporting game, rules of a sport, historical events, social interactions etc. The project involves a classroom presentation and a write-up of your project. Typically the written work is about five pages.

Projects are to be completed with one or two other students in the class. I urge you to see me first (I would like to talk to all members of the group) to discuss your ideas. Please confirm your group and date by October 11.

The presentation should describe your strategic problem and give the class a sense of how to apply tools from the course to solve it. It is worth 10 points.

The written part should consist of a more full description of the situation and a detailed exposition of how applying game theory tools can be used to improve performance or understanding. Please note that since you are modeling something from life, the simpler you make your model the better luck you will have in solving it so do not worry about capturing all the details, just the bare minimum that are relevant. The point breakdown for this part is roughly: 15 points for a clear description and model of the problem and illustration of how it applies to tools used in this course, 15 points for a correct use of tools to �solve� the problem, 10 points for creativity and originality.

The University policy on grading requires me to use the grading system I announce at the beginning of the semester in all cases. I cannot make any exceptions to that rule.

Academic Integrity & the Honors College

The University is an academic community. Its fundamental purpose is the pursuit of knowledge. Like all other communities, the University can function properly only if its members adhere to clearly established goals and values. Essential to the fundamental purpose of the University is the commitment to the principles of truth and academic honesty. Accordingly, the Code of Academic Integrity is designed to ensure that the principle of academic honesty is upheld. While all members of the University share this responsibility, The Code of Academic Integrity is designed so that special responsibility for upholding the principle of academic honesty lies with the students. (The University of Maryland Student Honor Council)

All University of Maryland students are asked to write and sign the following Honor Pledge to all submitted assignments and exams:

I pledge on my honor that I have not given or received any unauthorized assistance on this assignment/examination.

The University of Maryland honor system is fully described in the Code of Academic Integrity. Please read: www.studenthonorcouncil.umd.edu/code.html. The Code is administered by an all-student Honor Council. The student Honor Council office is located in room 2118 Mitchell Building and can be reached at 301-314-8204.

The Honors College works to enrich its community life by promoting an atmosphere of honesty, trust, and mutual responsibility. In the event that a Honors College student is found responsible for a violation of the Code of Academic Integrity by the Student Honor Council, he or she will be dismissed from the Honors College for the semester in which the violation took place and for all subsequent semesters in which the student is enrolled as an undergraduate at Maryland.