Introduction to Game Theory

Quiz 2

Time Allowed: 40 minutes Total Marks 30

Question 1 Marks: 10

Muhammad Hafi Wadgama

Section 1

2022-10-0133

A king is deciding where to hide his treasure whereas the pirate is deciding where to look for
the treasure. The payoff to the king from successfully hiding the treasure is 5 and from
having found it is 2. The payoff to the pirate from finding the treasure is 9 and from not
finding it is 4. The King can decide to hide it in location X, Y or Z.

Suppose the pirate has two pure strategies:

 Inspect both X and Y (they are close together)

 Inspect only Z (it is far away)

The King also has two strategies:

 Hide the treasure in either X or Y

 Hide the treasure in location Z

a. Find a mixed strategy Nash equilibrium for the game

Since X and Y are close, we assign it one probability p.
For Z we assign it probability 1-p.
For pirate finding is probability is q. For not finding it is 1-q.
E(king) if he hides in X or Y = 5(q) + (2-2q)
E(king) if he hides in Z= 5(q) + (2-2q)
E(pirate) if he finds =
E(pirate) if he finds in X or Y = 2p + 2-2p
E(pirate) if he finds in Z = 2p + 2-2p

b. In a mixed strategy Nash equilibrium calculated in part a. above, what is the payoff to
the King for hiding the treasure in location Z and what is the payoff to the pirate for
inspecting location Z.
Question 2 Marks 5

1/2 Left (q) Right

Left (p) X, 2 0,0
Right 0,0 2,2

Let p is the probability that player 1 chooses Left.

Let q is the probability that player 2 chooses Left.

a. Suppose the value of X is positive. Discuss how the value of p and q change in a
mixed strategy Equilibrium as the value of X increases.

For P1 : Left = p, and Right = 1-p

For P2 : Left = q and Right = 1-q

Solving for mixed strategy equilibrium:

Expected payoff to P1 if he plays Left = Xq

Expected payoff to P1 if he plays Right = 2-2q

Expected payoff to P2 if he plays Left = 2p

Expected payoff to P2 if he plays Right = 2-2p

Equating payoffs for P1:

q = 2/X+2; and p = ½

Since value of p is not dependant on value of X, it will stay the same.

Since X is in the denominator of the function for q, if it increases q will decrease.

b. Provide a brief definition of a mixed strategy equilibrium.

A mixed strategy equilibrium is an equilibrium where each player is indifferent between

choosing any of his strategies and therefore he opts to randomize his strategies, implying that
he will randomly chose any of his strategies since the expected payoffs for each are the same.

Question 3 (Marks 5)

1/2 Mars Jupiter Saturn

Earth 1,2 3,1 1,0
Fire 3,3 1,3 3,1
Water 1,0 2,4 2,2
Heart 5,6 0,0 3,3
Solve for a pure strategy Nash equilibrium in the game shown in the matrix above, using the
method of dominance. Show your working carefully. List all your steps. If you cannot solve
through dominance, state the reduced form matrix which remains.

No strategy strictly or weakly dominating over the other, therefore we apply mixed strategy
dominance.

We eliminate water for player 1 since it gives small guaranteed payoff.

We eliminate Jupiter for player 2 since Mars dominates over Jupiter.

We eliminate Earth for player 1 since Heart dominates over Earth.

We eliminate Saturn for P2 since Mars dominates over Saturn.

We eli

Question 4 (Marks 6)

1/2 D E F
A 8,8 5,6 -12,2
B 0,8 8,2 -15,2
C 2,-12 8,-9 4,4

a. If ϴ2 = 1/4, 1/2, 1/4 , Solve for the BR1 (ϴ2) =

u1(A, ϴ2) = ¼(8)+1/2(5)+1/4(-12) = 1.5

u1(B, ϴ2) = ¼(0)+1/2(8)+1/4(-15) = 0.25

u1(C, ϴ2) = ¼(2)+1/2(8)+1/4(4) = 5.5

BR1 (ϴ2) = {C}

b. If ϴ1 = 1/3, 1/3, 1/3 , Solve for the BR2 (ϴ1)=

u2(ϴ1 ,D) = 1/3(8) + 1/3(8) + 1/3(-12) = 4/3

u2(ϴ1 ,E) = 1/3(6) + 1/3(2) + 1/3(-9) = -1/3

u2(ϴ1 ,F) = 1/3(2) + 1/3(2) + 1/3(4) = 8/3

BR2 (ϴ1) = {F}

Question 5: (4 marks)

1/2 a b c
A 3,1 2,1 1,0
B 1,1 2,0 3,1
 C 0,100 0,2 0,-100
D 3,4 2,2 1,1

With reference to the matrix above, fill in the blanks below: If no relationship is found state
none.

1. For Player 1, strategy _D and B_______ strictly dominates strategy

_____C__________
2. For Player 1, strategy __none______ weakly dominates strategy
______none_________
3. For Player 2, strategy _none______ strictly dominates strategy _________none_____
4. For Player 2, strategy ______a__ weakly dominates strategy _________c______