Economics III - Advanced Microeconomics (Advanced Microeconomics)

The module imparts advanced concepts and methods of microeconomics focussing on choice under uncertainty and strategic interaction. It examines markets under asymmetric information and imperfect competition.
• Expected Utility Theory
○ Risk Preferences
○ Insurance Markets
i) Adverse Selection
ii) Moral Hazard
• Game Theory
○ Nash Equilibrium
i) in pure and mixed strategies
ii) in simultaneous and sequential games
iii) in one shot and repeated games
○ Strategic Interaction in Oligopolistic Markets
i) Simultaneous and sequential quantity competition (Cournot, Stackelberg)

Participation in the module will enable the students
• to apply expected utility theory in order to describe and evaluate decisions under uncertainty and/or asymmetric information. They will be capable of
○ analyzing the functioning of competitive insurance markets,
○ assessing market failure arising from asymmetric information,
○ solving problems of incentive compatibility.
• to apply game theory in order to analyze strategic interaction. They will be capable of
○ identifying and assessing equilibria,
○ practicing backward induction,
○ analyzing social dilemmas and coordination problems.
• to conceive policy advice und to evaluate concrete policy measures (e.g. in the field of social security or competition policy).

WI000021 "Economics I (Microeconomics)" OR WI001056 "Principles of Economics"

The module consists of a lecture as well as an exercise course. The lecture content will be conveyed to the students by means of verbal presentation. The exercise course aims to encourage students to independently deliberate the presented economic problems, which are discussed in the lecture and in the relevant literature. In the exercise course, participants apply the acquired knowledge by solving exercises and implementing case studies, partially this process takes place in group work. Moreover, concrete issues raised by students are addressed and online polls are conducted at regular intervals. The polls contain multiple-choice questions similar to those presented in the exam and help course participants gauge their level of performance relative to others.

Text books, script, exercises, online polls, videos

- Gravelle, Hugh and Ray Rees (2004): Microeconomics, Pearson
- Jehle, Geoffrey and Philip Reny (2011): Advanced Microeconomic Theory, Pearson
- Kreps, David (1990): A Course in Microeconomic Theory, Princeton University Press
- Osborne, Martin (2004): An Introduction to Game Theory, Oxford University Press
- Shy, Oz (1996): Industrial Organization: Theory and Applications, MIT Press
- Zweifel, Peter and Roland Eisen (2012): Insurance Economics, Springer

Students receive credit for the module after passing a multiple choice exam (written, 120 minutes). Students apply advanced concepts and methods of microeconomics (most notably of expected utility theory and game theory) to concrete decision problems and develop solutions. They show their ability to assess and evaluate decisions under uncertainty and asymmetric information (e.g. on insurance markets) as well as strategic interaction of decision makers (e.g. under oligopolistic competition). Hereby, students demonstrate their capacity for abstraction (thinking in economic models) and concretization (interpreting and applying the results of the model).