Presents a formal treatment of game theory, and then introduces selected topics in market design. The game theory portion covers foundations, dynamic games, games with incomplete information, mechanism design and signaling. Then we turn to selected topics in market design. Market design combines behavioral and experimental economics with auction and matching theory to design innovative markets. Applications are seen in almost all markets and government programs that attempt to assign and sometimes price scarce resources. Market design research helps us better understand the incentives that guide behavior. Then the incentives can be designed to better achieve goals. In settings where prices are used to motivate behavior, auctions have been developed to assign and price scarce resources. Possible topics include the assignment of radio spectrum for mobile communications, electricity market design to price and allocate wholesale electricity, mechanisms for pricing transport, approximation in mechanism design, and alternative approaches to characterizing agent behavior (e.g. price of anarchy).
Changes to Regular Class Schedule
Due to travels, some class sessions will be replaced with double-length sessions starting at 8:05am. These adjustments to the schedule are listed here:
- Tu, 5 Sep to Th, 14 Sep: double lecture (8:05am start)
- Tu, 19 Sep to Tu, 17 Oct: no lecture
- Th, 19 Oct to Th, 9 Nov: double lecture (8:05am start), but no class on Tu 31 Oct.
- Th, 16 Nov: double lecture (8:05am start); Tu, 21 Nov: no lecture
- Th, 30 Nov: no lecture; Tu, 5 Dec: double lecture (8:05am start)
The lecture notes, slides, and problem sets for the course are below. I also recommend the lecture notes of Bill Sandholm (requires class password).
|Problem Sets||Problem Set Answers|
||Will be posted here after due date. Requires class password.|
Outline of final 11 class sessions (7 Nov to 7 Dec)
- Auctioning many similar items
- Auctions with resale
- Introduction to market design
- Electricity market design
- Climate policy
- Spectrum auction design
- Mobile communications
- Financial securities
- High frequency trading
- A flow-based exchange (See paper and slides of Kyle & Lee.)
- Smart finance markets
Must read (in order of discussion)
Roth, Alvin E. (2002) “The Economist as Engineer: Game Theory, Experimental Economics and Computation as Tools of Design Economics,” Econometrica, 70:4, 1341–1378.
Camerer, Colin (2011) “The Promise and Success of Lab-Field Generalizability in Experimental Economics: A Critical Reply to Levitt and List,” in Fréchette, G. R. and A. Schotter (editors), Handbook of Experimental Economic Methodology, Chapter 14, Oxford University Press.
Bolton, Gary E., Ben Greiner, and Axel Ockenfels (2013) “Engineering Trust – Reciprocity in the Production of Reputation Information,” Management Science, 59, 265-285.
MacKay, David, Peter Cramton, Axel Ockenfels and Steven Stoft (2015) “Price Carbon—I will if you will,” Nature, 526, 315-316, 15 October.
Gale, Douglas, and Lloyd Shapley (1962) “College Admissions and the Stability of Marriage,” American Mathematical Monthly, 69, 9-15.
Roth, Alvin E. (2015), Who Gets What and Why, HarperCollins, UK, Ch. 3, 8, and 9.
Kojima, Fuhito (2015) “Recent Developments in Matching Theory and Their Applications,” Working Paper, Stanford University.
Ausubel, Lawrence M., Peter Cramton, Marek Pycia, Marzena Rostek, and Marek Weretka (2014) “Demand Reduction and Inefficiency in Multi-Unit Auctions,” Review of Economic Studies, 81:4, 1366-1400.
Cramton, Peter and Linda Doyle (2016) “An Open Access Wireless Market,” Working Paper, University of Maryland, March.
Cramton, Peter, R. Richard Geddes and Axel Ockenfels (2017) “Markets for Road Use: Eliminating Congestion through Scheduling, Routing, and Real-time Road Pricing,” Working Paper, University of Maryland, December 2017. [Presentation]
Budish, Eric, Peter Cramton, and John Shim (2015) “The High-Frequency Trading Arms Race: Frequent Batch Auctions as a Market Design Response,” Quarterly Journal of Economics, 130:4, 1547–1621, November 2015. [Presentation]
Kyle, Albert and Jeongmin Lee (2017) “Toward a Fully Continuous Exchange,” Oxford Review of Economic Policy, 33:4, 650-675. [Presentation]
Abulkadiroglu, Atila, and Tayfun Sonmez (1999) “House allocation with existing tenants,” Journal of Economic Theory, 88, 233-260.
Abdulkadiroglu, Atila, and Tayfun Sonmez (2003) “School Choice: A Mechanism Design Approach,” American Economic Review, 93:3, 729-747.
Braun, Sebastian, Nadia Dwenger, Dorothea Kubler, and Alexander Westkamp (2014) “Implementing Quotas in University Admissions,” Games and Economic Behavior, 85, 232-251.
Cramton, Peter, David JC MacKay, Axel Ockenfels and Steven Stoft (2017) Global Carbon Pricing—The Path to Climate Cooperation, MIT Press.
Cramton, Peter, Yoav Shoham, and Richard Steinberg (2006) Combinatorial Auctions, MIT Press.
Fudenberg, Drew and Jean Tirole (1991) Game Theory, MIT Press.
Gibbons, Robert (1992) Game Theory for Applied Economists, Princeton University Press.
Hartline, Jason D., and Brendan Lucier (2015) “Non-Optimal Mechanism Design,” American Economic Review, 105:10, 3102-3124.
Krishna, Vijay (2009) Auction Theory, Academic Press, Second Edition.
Levine, David (2012) Is Behavioral Economics Doomed?, Open Press.
Milgrom, Paul (2004) Putting Auction Theory to Work, Cambridge University Press.
Ockenfels, Axel and Alvin E. Roth (2006) “Late and multiple bidding in second price internet auctions: Theory and evidence concerning different rules for ending an auction,” Games and Economic Behavior, 55, 297–320.
Osborne, Martin and Ariel Rubinstein (1994) A Course in Game Theory, MIT Press.