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Ef4484 PS3

The document discusses three examples of Bayesian games: 1. An incomplete information game with a Bayesian Nash equilibrium of (B2, A0) and (B2, Y), meaning player 2 chooses Y and player 1's strategy depends on c. 2. A signaling game where players have private types and the Bayesian Nash equilibrium strategies are x1 = 17/7, x2L = 12/7, and x2H = 8/7. 3. An auction game where bidding one's own valuation is a weakly dominant strategy, resulting in a Bayesian Nash equilibrium where b1 = v1 and b2 = v2.

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Ziyan Cao
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86 views3 pages

Ef4484 PS3

The document discusses three examples of Bayesian games: 1. An incomplete information game with a Bayesian Nash equilibrium of (B2, A0) and (B2, Y), meaning player 2 chooses Y and player 1's strategy depends on c. 2. A signaling game where players have private types and the Bayesian Nash equilibrium strategies are x1 = 17/7, x2L = 12/7, and x2H = 8/7. 3. An auction game where bidding one's own valuation is a weakly dominant strategy, resulting in a Bayesian Nash equilibrium where b1 = v1 and b2 = v2.

Uploaded by

Ziyan Cao
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PDF, TXT or read online on Scribd
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1.

According to the incomplete information game in the question, the extended and
normal-form representations in the following figure are obtained.

Therefore, the Bayesian Nash equilibrium is (𝐵2 𝐴0 , 𝑌), which means player 2 choose Y,
and when c=2, player 1 choose B, and when c=0, player 1 choose A.
2.

Let t = 2 with probability 1/2 be type L, and t = 3 with probability 1/2 be type H.

𝑢1 = 1/2[2(𝑥1 + 𝑥2 𝐿 + 𝑥1 𝑥2 𝐿 ) − (𝑥1 )2 ] + 1/2[2(𝑥1 + 𝑥2 𝐻 + 𝑥1 𝑥2 𝐻 ) − (𝑥1 )2 ]

= (𝑥1 + 𝑥2 𝐿 + 𝑥1 𝑥2 𝐿 ) + (𝑥1 + 𝑥2 𝐻 + 𝑥1 𝑥2 𝐻 ) − (𝑥1 )2

𝑢2 𝐿 = 2(𝑥1 + 𝑥2 𝐿 + 𝑥1 𝑥2 𝐿 ) − 2(𝑥2 𝐿 )2

𝑢2 𝐻 = 2(𝑥1 + 𝑥2 𝐻 + 𝑥1 𝑥2 𝐻 ) − 3(𝑥2 𝐻 )2
Using derivation, we can obtain:

𝐿 𝐻
𝑥2 𝐿 𝑥2 𝐻
𝐵𝑅1 (𝑥2 , 𝑥2 )=1+ +
2 2
1 + 𝑥1
𝐵𝑅2 𝐿 (𝑥1 ) =
2
1 + 𝑥1
𝐵𝑅2 𝐻 (𝑥1 ) =
3
Substitute 𝐵𝑅2 𝐿 (𝑥1 ) and 𝐵𝑅2 𝐻 (𝑥1 ) into 𝐵𝑅1 (𝑥2 𝐿 , 𝑥2 𝐻 ),

1 + 𝑥1 1 + 𝑥1
𝑥1 = 1 + 2 + 3
2 2
→ 𝑥1 = 17/7

→ 𝑥2 𝐿 = 12/7, 𝑥2 𝐻 = 8/7

Therefore, Bayesian Nash equilibrium: 𝑥1 = 17/7, 𝑥2 𝐿 = 12/7, 𝑥2 𝐻 = 8/7.


3.

Suppose that Player i is valued at vi, and he's trying to decide whether to bid bi = vi or
bid some other amount bi = x. The other player j, want to bid bj.

Assume x ＞ vi,

• bj ≥ x. In this case, Player i will lose the auction whether he bids with x or vi.
• x ＞bj ＞vi. In this case, Player i is going to do worse by bidding x than by bidding
vi. If he bids vi, then he loses the auction and gets 0; If he bid x, he's going to win
the auction and pay bj, which is going to give him a negative yield of vi – bj.
• bj＜x. In this case, bid vi and bid x are going to have the same payoff for Player i,
because Player i is both going to win the auction, pay bj, and get vi-bj.

So, no matter how Player j bids, Player i will get a higher payoff if he bids at his valuation
vi than if he bids for x. The same thing happens when x ≤ vi.

Therefore, bidding on player’s own valuation is a weakly dominant strategy, and there is
a Bayesian equilibrium in which both players adopt this strategy. This means that the
Bayesian Nash equilibrium of this game: b1 = v1, b2 = v2.

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