EC 264: Decisions & Games

Problem Set VI

Problem 1: Reconsider the Attack-Defense game presented in the Lecture Slides on

Coordination Games. Suppose that due to changes in weather conditions, it has become a bit
easier to defend “location N”. Specifically, if the defender defends “location N” and the
attacker attacks “location N”, then the probability that the defense will succeed rises from
60% to 65% (and consequently, the probability that the attack will succeed falls from 40% to
35%). There is no other change in the payoff matrix.
(i) Calculate the new mixed strategy Nash equilibrium of the Attack-Defense game.
(ii) In the new equilibrium, what is the probability that an attack will succeed?

Problem 2: Consider the following Volunteer’ Dilemma game: N ≥ 2 persons witness an

ongoing crime. The following benefits/costs hold for each person P: If P calls the police she
gets a gross benefit of [B + Δ] and incurs a logistical cost of C. If someone else calls the
police, P gets a gross benefit of B and incurs no cost [Δ is the “warm glow effect” of being a
“good Samaritan”]. If no one calls the police, P receives no benefit and incurs no cost.
(i) Determine the symmetric Nash equilibrium of the game when B > C and Δ < C.
(ii) Determine the symmetric Nash equilibrium of the game when B > C and Δ > C.

Problem 3: Correlated equilibria vs. Nash equilibria

Write down a correlated equilibrium in the Sibling Rivalry game. Does the ‘stochastic
outcome’ of your stated correlated equilibrium Pareto-dominate the ‘stochastic /deterministic
outcomes’ of all Nash equilibria of the Sibling Rivalry game?

___________________________________________________________________________
A comment on Monitoring/Auditing Games
Here is one correct way to think about the Monitoring/Auditing Games that we talked about
in class.
Consider a two-player game between X and Y, where SX (resp., SY) is player X’s (resp., Y’s)
pure strategy set. Consider either of the following games:
Game 1: Y plays his strategy from SY, and this is not publicly observed; and then X plays her
strategy from SX. [Think of Y being a student choosing to study or not, and X being a teacher
deciding or whether or not to hold an exam.]
Game 2: Y plays his strategy from SY, and this is publicly observed; then X plays her strategy
from SX. [Think of Y being a tax-filer choosing how much income to report, and X being the
Tax Authority deciding or whether or not to audit the tax return.]
In either of these games, suppose the following condition applies. Before the beginning of
the game, X can publicly announce and commit to the strategy (pure or mixed) that she will
play (from SX) when her turn comes; and Y plays her strategy (pure or mixed) after being
informed of X’s committed strategy.
When that condition applies, then, at the beginning of the game, X might strictly prefer to
commit to a randomized strategy over her pure-strategy set SX.