Week 6 · Markets, Incentives & Institutions
How choices depend on what others may do, and how rules make cooperation more or less possible.
Your AI study mentor
Some choices cannot be understood one person at a time because each actor is responding to what others might do. This closes the module by moving from isolated choices to interdependent ones. The payoff matrix makes the strategic structure visible; the institutional redesign then shows how rules can trap people, enable cooperation, and change the likely outcome.
Avoid using selfishness as a complete explanation. A poor collective result can emerge from reasonable responses to information, expectations, and rules.
Which change to the rules would alter the stable outcome without requiring better people?
Start with the aims and questions so the readings have a purpose.
Use the prompt under each source to produce notes, not highlights alone.
Test the ideas through observation, analysis, or a small intervention.
Save the deliverables and check your work against the completion criteria.
Define what you are trying to understand before deciding that you have understood it.
Use the readings to build one design question: if the current outcome is poor, what change to information, incentives, or rules could make a better outcome easier to sustain?
Core material
3 guided readings, in the order shown.
Robert Aumann and Sergiu Hart · Stanford Encyclopedia of Philosophy
An overview of strategic interaction, rational choice, equilibrium, and the limits of purely individual reasoning.
Read the introduction and the sections on strategic form and repeated games. Draw one two-player payoff matrix in your notes, even if the numbers are simple.
Fred D'Agostino, Gerald Gaus, and John Thrasher · Stanford Encyclopedia of Philosophy
How political obligation, legitimacy, cooperation, and mutually acceptable rules are understood through social-contract traditions.
Read the introduction and compare contractarianism with contractualism. Note what makes a rule legitimate in each approach.
Elinor Ostrom · Cambridge University Press
Ostrom's empirical and institutional analysis of how communities govern common-pool resources without relying only on markets or central command.
Read chapters 1-2. Note how Ostrom's cases complicate the assumption that cooperation requires either private property or central authority.
7 study actions turn the reading into observable work.
Optional resources for going further after the reading plan.
Externalities, public goods, free riding, common resources, and the economic logic of collective action.
Open resource Opens in new tab