In business or personal relationships, promises and threats of good and bad behavior tomorrow may provide good incentives for good behavior today, but, to work, these promises and threats must be credible. In particular, they must come from equilibrium behavior tomorrow, and hence form part of a subgame perfect equilibrium today. We find that the grim strategy forms such an equilibrium provided that we are patient and the game has a high probability of continuing. We discuss what this means for the personal relationships of seniors in the class. Then we discuss less draconian punishments, and find there is a trade off between the severity of punishments and the required probability that relationships will endure. We apply this idea to a moral-hazard problem that arises with outsourcing, and find that the high wage premiums found in foreign sectors of emerging markets may be reduced as these relationships become more stable.

1. Introduction: Five First Lessons
2. Putting Yourselves Into Other People's Shoes
3. Iterative Deletion and the Median-Voter Theorem
4. Best Responses in Soccer and Business Partnerships
5. Nash Equilibrium: Bad Fashion and Bank Runs
6. Nash Equilibrium: Dating and Cournot
7. Nash Equilibrium: Shopping, Standing and Voting on a Line
8. Nash Equilibrium: Location, Segregation and Randomization
9. Mixed Strategies in Theory and Tennis
10. Mixed Strategies in Baseball, Dating and Paying your Taxes
11. Evolutionary Stability: Cooperation, Mutation, and Equilibrium
12. Evolutionary Stability: Social Convention, Aggression, and Cycles
13. Sequential Games: Moral Hazard, Incentives, and Hungry Lions
14. Backward Induction: Commitment, Spies, and First-mover Advantages
15. Backward Induction: Chess, Strategies, and Credible Threats
16. Backward Induction: Reputation and Duels
17. Backward Induction: Ultimatums and Bargaining
18. Imperfect Information: Information Sets and Sub-game Perfection
19. Subgame Perfect Equilibrium: Matchmaking and Strategic Investments
20. Subgame Perfect Equilibrium: Wars of Attrition
21. Repeated Games: Cooperation vs. the End Game
22. Repeated Games: Cheating, Punishment, and Outsourcing
23. Asymmetric Information: Silence, Signaling and Suffering Education
24. Asymmetric Information: Auctions and the Winner's Curse

This course is an introduction to game theory and strategic thinking. Ideas such as dominance, backward induction, Nash equilibrium, evolutionary stability, commitment, credibility, asymmetric information, adverse selection, and signaling are discussed and applied to games played in class and to examples drawn from economics, politics, the movies, and elsewhere.