Lecture 13 - Sequential Games: Moral Hazard, Incentives, and Hungry Lions

Update: 2018-06-06

Description

We consider games in which players move sequentially rather than simultaneously, starting with a game involving a borrower and a lender. We analyze the game using “backward induction.” The game features moral hazard: the borrower will not repay a large loan. We discuss possible remedies for this kind of problem. One remedy involves incentive design: writing contracts that give the borrower an incentive to repay. Another involves commitment strategies; in this case providing collateral. We consider other commitment strategies such as burning boats. But the key lesson of the day is the idea of backward induction.

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Lecture 13 - Sequential Games: Moral Hazard, Incentives, and Hungry Lions

#box-pro-ellipsis-172744898788937{-webkit-line-clamp:2;}Lecture 13 - Sequential Games: Moral Hazard, Incentives, and Hungry Lions

Lecture 13 - Sequential Games: Moral Hazard, Incentives, and Hungry Lions

William Sheppard

Lecture 13 - Sequential Games: Moral Hazard, Incentives, and Hungry Lions