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Calculating the Various Aspects of Game Theory

# Calculating the Various Aspects of Game Theory

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Given the payoffs, determine Nash equilibrium, Optimal Strategy, Dominant Strategy and Rational behavior.(a) Consider the game in the following table, where s1a and s2a are strategies available to player1, s1b and s2b are strategies available to player 2, and entries in the table are payoffs to the two players with that of player 1 listed first
Given the payoffs, determine Nash equilibrium, Optimal Strategy, Dominant Strategy and Rational behavior.(a) Consider the game in the following table, where s1a and s2a are strategies available to player1, s1b and s2b are strategies available to player 2, and entries in the table are payoffs to the two players with that of player 1 listed first

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02/01/2013

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Economics
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Sub: Economics Topic: Game Theory
*
The Homework solutions from Classof1 are intended to help students understand the approach to solving the problem and not forsubmitting the same in lieu of their academic submissions for grades.
Question:Calculating the Various Aspects of Game Theory

(a)

Consider the game in the following table, where s
1a
and s
2a
are strategies available to player1, s
1b
and s
2b
are strategies available to player 2, and entries in the table are payoffs to the two playerswith that of player 1 listed firsts
1b
s
2b
s
1a
(2,2) (1, 2)s
2a
(2,1) (0.0)Assuming both agents are rational, what is the Nash equilibrium of this game?(b) Compare the game in (a) with the game in the following table,s
1b
s
2b
s
1a
(3,3) (0, 3)s
2a
(3, 0) (1.1)Are the following statements true or false? Briefly justify your answers.(i) This game differs fundamentally from that in (a) in that neither player has a dominant, strategy.(ii) This game differs fundamentally from that in (a) in that neither player earns their highest possiblepayoff in the unique Nash equilibrium.

Sub: Economics Topic: Game Theory
*
The Homework solutions from Classof1 are intended to help students understand the approach to solving the problem and not forsubmitting the same in lieu of their academic submissions for grades.
Solution:
(a)

If there is a set of strategies with the property that no player can benefit by changing her strategywhile the other players keep their strategies unchanged, then that set of strategies and thecorresponding payoffs constitute the Nash Equilibrium. Under Nash equilibrium, no player has anincentive to deviate from the strategy chosen, since no player can choose a better strategy giventhe choices of the other player. Assuming that both agents are rational, the Nash equilibrium willbe at the point (s
a1,
s
b1
)
.
We see that the payoffs for the both the players are (3, 3) when player1chooses strategy s
a1
and player 2 chooses strategy s
b1.
(b)

(i)False. A strategy is dominant if, regardless of what any other players do, the strategy earns aplayer a larger payoff than any other. Hence, a strategy is dominant if it is always better than anyother strategy, for any profile of other players' actions. Depending on whether "better" is definedwith weak or strict inequalities, the strategy is termed strictly dominant or weakly dominant. If one strategy is dominant, then all others are dominated.(ii)True. This game is different from that in (a).