BE 510: Business Economics I

This module will start with a brief review of standard models of choice, including choice under risk, and then move on to an extended introduction to non-cooperative game theory. Strategic decision making and relevant solution concepts for games of complete and incomplete information will be covered in detail. The course will close with a discussion of basic notions in the economics of information. An important aim is to convey an understanding and a working analytical knowledge of how economists model decision making.

Learning outcomes
On completion of the module students will have improved their ability to apply economic reasoning in the context of economic decision making. They will have acquired an advanced understanding of model-based analytical methods and arguments in microeconomics, and they will have gained familiarity with relevant economic and game-theoretical concepts under both full and incomplete information.

Necessary prerequisites

Recommended prerequisites
Knowledge of introductory microeconomics at bachelor level

Forms of teaching and learningContact hoursIndependent study time
Lecture2 SWS10 SWS
Exercise class2 SWS8 SWS
ECTS credits6
Graded yes
Form of assessmentWritten exam (90 min)
Restricted admissionno
Further information
Performing lecturer
Prof. Dr. Henrik Orzen
Prof. Dr. Henrik Orzen
Frequency of offeringFall semester
Duration of module 1 semester
Range of applicationM.Sc. MMM, M.Sc. Bus. Edu.
Preliminary course work
Program-specific Competency GoalsCG 1, CG 2
LiteratureTadelis, S. (2012). Game Theory: An Introduction. Princeton University Press. Chiang, A.C. (2005). Fundamental Methods of Mathematical Economics. McGraw-Hill.
Course outline1. Expected utility theory (decision making under risk and uncertainty; risk attitudes; independence axiom; limits; prospect theory)
2. Games – Nash equilibrium and other solution concepts (fundamentals, methods and assumptions; normal form; dominance and iterated dominance; best response; Nash equilibrium)
3. Dynamic games (Sequential moves; extensive form; subgame-perfect equilibrium; repeated play; infinite horizon games)
4. Incomplete information (Bayes-Nash equilibrium; Examples)
5. Continuous and mixed strategies (infinitely many courses of action; randomizing; properties of mixed strategy equilibria)
6. Beliefs and Bayes’ rule
7. Perfect Bayesian Equilibrium (limits of the concept of subgame-perfect equilibrium; PBE as a solution concept; Sequential rationality)
8. Adverse selection and signaling (asymmetric information; signaling games; pooling and separating equilibria; screening)
9. Moral hazard and incentive contracts (principalagent problems; hidden action and incentive contracts; participation constraints and incentivecompatibility constraints)