Introduction to game theory, University of Economics, Prague

Revision assignment 1

1. Consider the following matrix game.

P2
L M R
T (4, 1) (-1, -1) (2, 2)
P1 U (3, 3) (7, 4) (1, 5)
D (2, 2) (-1,1) (0, 3)
B (4, -2) (6, 10) (-2, -1)

a. Use iterated elimination of dominated strategies to solve this game. Be clear about the order of
elimination and if the domination is weak or strong. Argue in detail for the first elimination why one
action dominates the other. (0.8p)
b. What is the resulting equilibrium? (0.2p)

SOLUTION:

A)

1. The first elimination will be done by player 2 as they can see that M dominates L for them
and so they eliminate L. M dominates L because the values for player 2’s side is greater in M
and so they will definitely go with that strategy.

Player 1 is aware of player 2 strategies and knows that players 2 will opt for the above
strategy.
2. The next elimination is done by player 1 and they see that U dominates T and so they
eliminate row T as U has better values than T for player 2 and so they will opt with that
strategy.

3. The next elimination done by player 2 shows that M dominates R and so they eliminate R.

4. The final elimination is row U and D as the only suitable solution for both the players
accordingly would be combination BM i.e (6,10) as player 1 will eliminate (-1,1), then player
2 would opt for (6,10) and player 1 knows that player 2 would opt for it as well.

B) The resulting equilibrium is (6,10), i.e BM.