Economics of information and uncertainty
goktunabilge@gmail.com
Content
Objective
The objective of this course is to introduce students to the role of information in economics.
Course Content
This course introduces two new aspects of the decision of economic agents following Microeconomics 1 and 2 courses: taking into account of uncertainty and information in decisions and markets. The course provides an introduction to the methods and models of finance, game theory and contracts. We start with an introduction to decision making in uncertainty. We then move on to the principal agent theory. This is a theoretical course with applications in finance and insurance sector.
Course Learning Outcomes
1. Present a theory of decision under uncertainty.
2. Apply this theory to markets: insurance / financial investments.
3. Introduce information problems linked to the presence of uncertainty.
4. Introduce a theory of equilibrium under uncertainty.
Teaching and Learning Methods
Students are supposed to learn the role of uncertainty and information through mathematical models and review these models through exercices.
References
Jean-Louis Cayatte, Microéconomie de l’incertitude, De Boeck
Octave Jokung, Microéconomie de l’incertain, Dunod
Banerjee, Samiran. Intermediate Microeconomics: A Tool-Building Approach. 1st ed. Routledge, 2014.
Weekly Contents
| Week | Weekly Contents |
|---|---|
| 1 | Introduction of uncertainty: different forms of uncertainty, Information matrix, Lotteries |
| 2 | Saint Petersburg Paradox, Markowitz’s functions |
| 3 | Theory of expected utility |
| 4 | Risk aversion - Certainty equivalent - Risk premium |
| 5 | Comparison of risk aversion levels - Decomposition of risk premium: Pratt approximation |
| 6 | Application: financial investments |
| 7 | Properties of the usual utility functions |
| 8 | Application: insurance demand |
| 9 | Midterm |
| 10 | Asymmetry of information |
| 11 | Mechanism design |
| 12 | Moral hazard |
| 13 | Self-selection |
| 14 | Signaling theory |
Assessment System
| Activities | Number | Contribution |
|---|---|---|
| Contribution of in-term studies to overall grade | 1 | 50 |
| Contribution of final exam to overall grade | 1 | 50 |
| Total | 2 | 100 |
| Activities | Number | Contribution |
|---|---|---|
| Assignments | 3 | 10 |
| Presentation | 0 | 0 |
| Midterm Examinations (including preparation) | 1 | 40 |
| Project | 0 | 0 |
| Laboratory | 0 | 0 |
| Other Applications | 0 | 0 |
| Quiz | 0 | 0 |
| Term Paper/ Project | 0 | 0 |
| Portfolio Study | 0 | 0 |
| Reports | 0 | 0 |
| Learning Diary | 0 | 0 |
| Thesis/ Project | 0 | 0 |
| Seminar | 0 | 0 |
| Other | 0 | 0 |
| Total | 4 | 50 |