Business School

Microeconomics and experimental economics

A variety of economic transactions involve strategic decision-making, where participants have to anticipate what another person will do and what will be the best way to respond to that anticipated course of action. The payoffs that accrue to the participants depend crucially on this interaction.

There are many examples, such as employees deciding how hard to work when the boss is away, airline companies trying to decide whether to cut prices or not, the response of competitors to a merger, and people bidding for art on eBay.

The body of tools that deals with such strategic decision making is called “game theory”. Research on game theory and experimental economics includes:

Analysis of foundational issues in non cooperative game theory: the nature of various equilibrium concepts and the relation between them, with particular emphasis on the concept of the strategic stability of equilibria.
Application of game-theoretic tools to the political economy of trade.
Contract design: how incentives affect contractual outcomes, including applications to franchising, land tenancy and credit markets.
Alternatives to expected utility theory and their economic implications for insurance markets, entrepreneurship, finance markets etc.
Auctions: optimal bidding strategies and optimal auction design, including applications to TradeMe auctions and the New Zealand wholesale electricity market.
Experimental analysis of various aspects of strategic decision making, with particular focus on the role of social norms and norm-driven behaviour in economic interactions.