MANAGERIAL DECISION MAKING

The course introduces the main concepts of strategic thinking by means of game theory and illustrates how it can be applied. Game theory is concerned with decision making in social and strategic interaction and is presently the dominating method in all social sciences, particularly in business economics. What game theory provides are tools to (formally) represent strategic interactions, the “game forms”, and solution concepts prescribing for all interacting parties what to choose. The course introduces the main concepts and tools of game theory and applies them to actual management tasks with and without strategic interaction. Thus the course will specify concepts such as strategies, payoffs, and information conditions in static and dynamic games. In addition to standard game paradigms (board games, market games, etc.), specific applications try to capture special management problems like corporate governance, auditing, mergers and acquisitions, termination of joint ventures, etc.

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Knowledge and understanding: The course will offer key theoretical tools to recognize and analyze situations of strategic interaction. Hence, will enhance the understating of economic and social phenomena within and outside firms and other organizations. Applying knowledge and understanding: The students will be able to define predictions about subjects’ behavior involved in situations of strategic interactions Making judgements: We expect students to be able to assess the sustainability and effectiveness of arrangements meant to govern economic relationships within organization as well as outside them, highlighting their strengths and weaknesses. Moreover, students would be able to get insights about occurrence of specific economic and social phenomenon. Communications Skills: This course will give the students the possibility to acquire and understand major terms and concepts in order to communicate their ideas, proposals, analysis and critical reasoning in an appropriate way, but at the same time being able to convey effectively insights and economic implications to a non-specialized audience. Learning skills: This course will contribute to empower learners giving them very versatile tools that can be applied to many social and economic contexts. They can also be combined with knowledge from other disciplines to provide more accurate or alternative analysis.

Decision making under strategic uncertainty: understanding the problem and its implications. The game-theoretic approach. Sequential and static games. Backward Induction. Equilibria in pure and mixed strategies. Sequential Rationality. (Subgame) Perfect Equilibria. Bargaining. Auctions. Repeated Games. Applications to Managerial Decision Making.

J. Watson, “Strategy”, Norton (latest edition). Handouts and other supplementary material (distributed via the web page of the course)

Lectures Practice Classes/Classroom Experiments

The student will be evaluated on the basis of the individual scores achieved on: A written test consisting of a mix of open-ended questions, multiple choice questions and exercises. The exact combination of each type of questions will be decided by the lecturer during the course. Two tests will take place during the course (weeks 6 an 10) and one at the end. The total score will be given by 35% first test, 35% second test, 30% final test. Non attending students can take a full exam (100% of grades).

Pass the exam.