The course introduces the main concepts and models of human decision making in situations characterized by complexity and uncertainty. We will first analyze individual decision making and characterize the heuristics we typically employ and the biases these may imply. We will then move to interactive deecisions and model 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. Finally, we will discuss how the introduction of Artificial Intelligence is going to change the world of decision making.

Knowledge and understanding: The course will offer key theoretical tools to recognize and analyze situations of decision making under uncertainty and 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 uncertainty: understanding heuristics and biases. Strategic uncertainty: the game-theoretic approach and its limits. 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. How is Artificial Intelligence going to change the picture?

For the part on Game Theory: J. Watson, “Strategy”, Norton (latest edition). For the other parts: handouts and readings which will be made available on MyLuiss

Lectures Practice Classes/Classroom Experiments

Attending students will be evaluated: one third on the basis of a report written during the course, two thirds on the basis of the final exam. Non-attending students 100% on the basis of the final exam.

Pass the exam.