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Lecture 09

The document discusses game theory concepts like Nash equilibrium, dominant strategies, best responses, and mixed strategies. It provides examples like the prisoner's dilemma, coordination games, and matching pennies to illustrate these concepts and show that Nash equilibria exist in both pure and mixed strategies.

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Latoria Boyer
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16 views

Lecture 09

The document discusses game theory concepts like Nash equilibrium, dominant strategies, best responses, and mixed strategies. It provides examples like the prisoner's dilemma, coordination games, and matching pennies to illustrate these concepts and show that Nash equilibria exist in both pure and mixed strategies.

Uploaded by

Latoria Boyer
Copyright
© © All Rights Reserved
Available Formats
Download as PDF, TXT or read online on Scribd
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15-396

Science of teh Interwebs


Preliminaries of
Game Theory
Lecture 8 (October 4, 2011)
Players Roommate 2
WiFi Wired
Roommate 1
WiFi 10,10 15,5

Wired 5,15 5,5

Payoffs
Strategies for Player 1: S1 = {WiFi, Wired}
Strategies for Player 2: S2 = {WiFi, Wired}
S = { (WiFi, Wired), (WiFi, WiFi), (Wired, WiFi),
(Wired, Wired) }
We assume that everything a
player cares about is summarized
in the player’s payoff

We also assume that each player


knows everything about the game
Prisoner’s Dilemma
Suspect 2
Conf No Conf
Suspect 1

Conf -4,-4 0,-10

No Conf -10,0 -1,-1


Best Responses
A strategy s1* is a best response by
player 1 to a strategy s2 for player 2 if

!1(s1*, s2) ! !1(s1, s2)

for all strategies s1 " S1.


Suspect 2
Suspect 1 Conf No Conf

Conf -4,-4 0,-10

No Conf -10,0 -1,-1

If Suspect 2 does not confess, then


confessing is a best response for Suspect 1
Dominant Strategy
A strategy s1* is a Dominant Strategy
for player 1 if s1* is a Best Response
to every possible strategy for player 2.
Suspect 2
Suspect 1 Conf No Conf

Conf -4,-4 0,-10

No Conf -10,0 -1,-1

Confessing is a dominant strategy


for both Suspects!
Player 2
I II

I 3,3 1,1
Player 1

II 1,1 0,0

I is a dominant strategy for


both players
Optimal Pricing
Firm 2
H L

H 2,2 0,3
Firm 1

L 3,2 5,1

(L,H) will be played


Player 2
L M R
t 3,3 2,2 2,1
Player 1

m 2,2 1,2 3,1


b 1,2 3,1 2,3

Neither player has a


dominant strategy
Nash Equilibrium
A pair of strategies (s1*,s2*) is in Nash Equilibrium
if s1* is a Best Response by player 1 to s2*, and s2*
is a Best Response by player 2 to s1*.

Player 2
L M R
t 3,3 2,2 2,1
Player 1

m 2,2 1,2 3,1


b 1,2 3,1 2,3
Coordination Game
Player 2
L R

L 1,1 0,0
Player 1

R 0,0 1,1

Nash Equilibria: (L,L), (R,R)


Dove-Hawk
Animal 2
D H

D 3,3 1,5
Animal 1

H 5,1 0,0

Nash Equilibria: (D,H), (H,D)


Matching Pennies
Player 2
H T

H -1,+1 +1,-1
Player 1

T +1,-1 -1,+1

No pure Nash Equilibria Exist!


Randomized Strategies
Player 2
H T

H -1,+1 +1,-1
Player 1

T +1,-1 -1,+1

Player 1 picks H with probability p and


Player 2 picks H with probability q
Player 2
H T

H -1,+1 +1,-1 (p=1/2,q=1/2)


Player 1

is an
equilibrium!
T +1,-1 -1,+1

E[Payoff for P1 doing H] = (-1)q + (+1)(1-q) = 1-2q


E[Payoff for P1 doing T] = (+1)q + (-1)(1-q) = 2q-1
Player 1 will choose H if 1-2q > 2q-1. i.e., if q < 1/2
Player 1 will choose T if 1-2q < 2q-1. i.e., if q > 1/2
We say that (p*,q*) is a mixed strategy
Nash Equilibrium if p* is a best
response by player 1 to q* and q* is a
best response by player 2 to p*
Player 2
L R

U 1,1 4,0 (p=2/3,q=3/4)


Player 1

is an
equilibrium!
D 2,1 1,3

Player 1 is only willing to randomize if the


expected payoffs of U and D are equal:
q+4(1-q)=2q+(1-q), so q=3/4
Goalie
l r

L .58,.42 .95,.05
Kicker

R .93,.07 .70,.30
Player 2
L R

U 1,1 3,0 The only Nash


Player 1

Equilibrium is
(U,L)
D 0,3 2,2

But (U,L) gives each player a payoff of 1,


whereas (D,R) gives them 2.

Nash Equilibrium not always socially optimal


g2g
ttyl

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