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AdvMicro PS09

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9 views2 pages

AdvMicro PS09

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fangcao1998fc
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© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Advanced Microeconomic Theory I University of Konstanz

Chair of Microeconomic Theory


Problem set 9: Bayesian games and mixed strategies
1. (Student exercise)Find all Nash equilibria of the following two-player game with
complete information. (You might rst want to look for dominated strategies.)

L S R
U 3, 2 2, 1 1, 3
M 2, 1 1, 5 0, 3
D 1, 3 4, 2 2, 2

2. Each of two players receives a ticket on which a monetary prize is written down.
The prize of each player is randomly chosen from a nite set X = {x1 , x2, ..., xn } ,
where x1 < x2 ... < xn . The two prizes are identically and independently dis-
tributed, with distribution function F, and f (xk ) > 0 for all xk ∈ X. Each player
only sees his own ticket and the prize written on it. After receiving their tickets,
each player is asked simultaneously whether he wants to exchange his ticket for
the other player's ticket. If both players agree then the tickets are exchanged;
otherwise each player receives his own ticket and the prize written on it. Each
player's objective is to maximize his expected payo.

(a) Model this situation as a Bayesian game.


(b) Argue by iterative deletion of (weakly) dominated strategies that in any
Bayesian Nash equilibrium the highest prize that either player is willing
to exchange is the smallest possible prize. Characterize this equilibrium
formally.

3. Consider a game of two players. Player 2 knows the state of the world that can
be either ω1 or ω2 . Player 1 does not know that state but attaches probability
0.6 to state ω1 and 0.4 to state ω2 . The game is depicted below. Determine the
Bayesian Nash equilibrium.

ω1 ω2
L R L R
T 1, 2 0, 1 T 1, 3 0, 4
B 0, 4 1, 3 B 0, 1 1, 2

1
4. Consider an auction with two bidders where each player's valuation for the ob-
ject is private information. Assume the valuations vi are drawn from a uniform
distribution on [0, 100].

(a) Consider a second-price auction (the highest bidder wins the object and pays
a price equal to the bid of the second highest bidder). Formulate the game
as a Bayesian game.
(b) Show that in a second price auction players have a (weakly) dominant strat-
egy to bid their true valuation, i.e. bi = vi .
(c) Consider instead a rst-price auction (the highest bidder wins and pays his
own bid). Show that the strategy prole
v1 v2
 
(b1 , b2 ) = ,
2 2

forms a Bayesian Nash equilibrium.

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