Microeconomics II

Spring 2021
PROF. SWAGATA BHATTACHARJEE
Today
 Extensive to Normal Form Conversion
 Mixed Strategy and Expected Payoffs
 Solving a game: Dominance Solvability
 Best Response
Example: Sequential Legislators’ Vote
 Three legislators vote whether they allow themselves a salary raise of $2000 per year. Since voters are
observing the vote, a legislator would estimate the loss of face by having to vote for a raise as $1000 per
year.
 If 2 out of 3 legislators vote for hike, it’s accepted, otherwise there is no hike.
 A has to vote first, then B, then C, and all votes are open.
 Rewrite the payoffs as: if there is a hike and you voted for hike, payoff is 2, if there is a hike but you did
not vote for it, payoff is 3. If there is no hike and you voted for hike, payoff is 0, if there is no hike and
you did not vote for hike, payoff is 1. (This is called normalization of payoffs)
Example: Sequential Legislators’ Vote
Example: Sequential Legislators’ Vote
 I={A,B,C}
 𝑆𝐴 = 𝑅, 𝑁𝑅
 𝑆𝐵 = 𝑅, 𝑁𝑅 ?
Example: Sequential Legislators’ Vote
 I={A, B, C}
 𝑆𝐴 = 𝑅, 𝑁𝑅
 𝑆𝐵 = 𝑅, 𝑁𝑅 WRONG!
 From B’s point of view, 𝑁2 and 𝑁1 are very
different, so taking action R at 𝑁1 is NOT the
same as taking action R at 𝑁2 !
 Remember , strategy is a complete
contingent action plan. Strategy is NOT
synonymous to Action!
 𝑆𝐵 =
𝑅 𝑖𝑓 𝐴 𝑐ℎ𝑜𝑠𝑒 𝑅 𝑎𝑛𝑑 𝑅 𝑖𝑓 𝐴 𝑐ℎ𝑜𝑠𝑒 𝑁𝑅,
𝑅 𝑖𝑓 𝐴 𝑐ℎ𝑜𝑠𝑒 𝑅 𝑎𝑛𝑑 𝑁𝑅 𝑖𝑓 𝐴 𝑐ℎ𝑜𝑠𝑒 𝑁𝑅,
𝑁𝑅 𝑖𝑓 𝐴 𝑐ℎ𝑜𝑠𝑒 𝑅 𝑎𝑛𝑑 𝑅 𝑖𝑓 𝐴 𝑐ℎ𝑜𝑠𝑒 𝑁𝑅
𝑁𝑅 𝑖𝑓 𝐴 𝑐ℎ𝑜𝑠𝑒 𝑅 𝑎𝑛𝑑 𝑁𝑅 𝑖𝑓 𝐴 𝑐ℎ𝑜𝑠𝑒 𝑁𝑅
Example: Sequential Legislators’ Vote
 I={A, B, C}
 𝑆𝐴 = 𝑅, 𝑁𝑅
 Remember , strategy is a complete contingent
action plan. Strategy is NOT synonymous to
Action!
𝑅 𝑎𝑡 𝑁1 𝑎𝑛𝑑 𝑅 𝑎𝑡 𝑁2 ,
𝑅 𝑎𝑡 𝑁1 𝑎𝑛𝑑 𝑁𝑅 𝑎𝑡 𝑁2,
 𝑆𝐵 = 𝑁𝑅 𝑎𝑡 𝑁1 𝑎𝑛𝑑 𝑅 𝑎𝑡 𝑁2 ,
𝑁𝑅 𝑎𝑡 𝑁1 𝑎𝑛𝑑 𝑁𝑅 𝑎𝑡 𝑁2
Example: Sequential Legislators’ Vote
 I={A,B, C}
 𝑆𝐴 = 𝑅, 𝑁𝑅
𝑅 𝑎𝑡 𝑁1 𝑎𝑛𝑑 𝑅 𝑎𝑡 𝑁2 ,
𝑅 𝑎𝑡 𝑁1 𝑎𝑛𝑑 𝑁𝑅 𝑎𝑡 𝑁2,
 𝑆𝐵 = 𝑁𝑅 𝑎𝑡 𝑁1 𝑎𝑛𝑑 𝑅 𝑎𝑡 𝑁2 ,
𝑁𝑅 𝑎𝑡 𝑁1 𝑎𝑛𝑑 𝑁𝑅 𝑎𝑡 𝑁2

 Alternative way: at 𝑁1 name the actions R

and NR, at 𝑁2 name them R’, NR’.
 Then,
 𝑆𝐵 = {𝑅𝑅,′ 𝑅𝑁𝑅′ , 𝑁𝑅𝑅′ , 𝑁𝑅 𝑁𝑅′}
 𝑆𝐶 =? 16 𝑒𝑙𝑒𝑚𝑒𝑛𝑡𝑠 𝑖𝑛 𝑡ℎ𝑒 𝑠𝑒𝑡
 𝑆 =? (ℎ𝑜𝑤 𝑚𝑎𝑛𝑦 𝑒𝑙𝑒𝑚𝑒𝑛𝑡𝑠? )
Example: Sequential Legislators’ Vote
 I={A,B,C}
 𝑆𝐴 = 𝑅, 𝑁𝑅
 𝑆𝐵 =
𝑅 𝑖𝑓 𝐴 𝑐ℎ𝑜𝑠𝑒 𝑅 𝑎𝑛𝑑 𝑅 𝑖𝑓 𝐴 𝑐ℎ𝑜𝑠𝑒 𝑁𝑅,
𝑅 𝑖𝑓 𝐴 𝑐ℎ𝑜𝑠𝑒 𝑅 𝑎𝑛𝑑 𝑁𝑅 𝑖𝑓 𝐴 𝑐ℎ𝑜𝑠𝑒 𝑁𝑅,
𝑁𝑅 𝑖𝑓 𝐴 𝑐ℎ𝑜𝑠𝑒 𝑅 𝑎𝑛𝑑 𝑅 𝑖𝑓 𝐴 𝑐ℎ𝑜𝑠𝑒 𝑁𝑅
𝑁𝑅 𝑖𝑓 𝐴 𝑐ℎ𝑜𝑠𝑒 𝑅 𝑎𝑛𝑑 𝑁𝑅 𝑖𝑓 𝐴 𝑐ℎ𝑜𝑠𝑒 𝑁𝑅
 Alternative way: at 𝑁1 name the actions R
and NR, at 𝑁2 name them R’, NR’.
 𝑆𝐶 =? 16 𝑒𝑙𝑒𝑚𝑒𝑛𝑡𝑠 𝑖𝑛 𝑡ℎ𝑒 𝑠𝑒𝑡
 𝑆 =? (128 𝑒𝑙𝑒𝑚𝑒𝑛𝑡𝑠)
Example: Pricing Game Variations
 Two firms compete by each selecting either a high (H) or low (L) price for a product that they both
produce.
 Consider the following variants: Variant 1: Firm 1 moves first, Firm 2 observes and then moves.
 Notice that actions for 2
have been labelled
differently to remind that
choosing H in the top
information set is different
than choosing H in the
bottom information set.
Example: Pricing Game Variations
Normal Form

1\2 HH’ LH’ HL’ LL’

(H if 1 chooses H (L if 1 chooses H (H if 1 chooses H (L if 1 chooses H
H if 1 chooses L) H if 1 chooses L) L if 1 chooses L) L if 1 chooses L)

H 1,1 0,2 1,1 0,2

L 2,0 2,0 ½, ½ ½, ½
Example: Pricing Game Variations
 Two firms compete by each selecting either a high (H) or low (L) price for a product that they both
produce.
 Consider the following variants: Variant 2: firms move simultaneously.
Exercise
 A game is given in the extensive form. Is the following normal form representation equivalent?
If not, point out the reason(s) and write down the strategy set for player B.
Extensive Vs Normal Form: Answer
Example: KE Game
(W: Figure 2.6 and Guided Exercise Ch 3)
Example: KE Game
(W: Figure 2.6 and Guided Exercise Ch 3)
 I={K,E}
 𝑆𝐸 = 𝑃, 𝑁
 𝑆𝐾 =?
Example: KE Game
(W: Figure 2.6 and Guided Exercise Ch 3)
 I={K,E}
 𝑆𝐸 = 𝑃, 𝑁
 𝑆𝐾 =?
 Remember , strategy is a complete contingent
action plan. Strategy is NOT synonymous to
Action!
 Have to specify the entire plan for K, whenever
he gets to decide.
 That means, even if he chooses S and effectively
ends the game (so, action= S), to specify his
“strategy” we have to specify what he would be
choosing if he were to choose in the other two
nodes as well.
 Similarly, if he decides N in the second decision
point, we still have to specify what he would
choose should he produced the film.
Example: KE Game
(W: Figure 2.6 and Guided Exercise Ch 3)
Example: KE Game
(W: Figure 2.6 and Guided Exercise Ch 3)
Example: Pricing Game Variations
 Two firms compete by each selecting either a high (H) or low (L) price for a product that they both
produce.
 Consider the following variants: Variant 1: Firm 1 moves first, Firm 2 observes and then moves.
 Notice that actions for 2
have been labelled
differently to remind that
choosing H in the top
information set is different
than choosing H in the
bottom information set.
Example: Pricing Game Variations
Normal Form

1\2 HH’ LH’ HL’ LL’

(H if 1 chooses H (L if 1 chooses H (H if 1 chooses H (L if 1 chooses H
H if 1 chooses L) H if 1 chooses L) L if 1 chooses L) L if 1 chooses L)

H 1,1 0,2 1,1 0,2

L 2,0 2,0 ½, ½ ½, ½
Example: Pricing Game Variations
 Two firms compete by each selecting either a high (H) or low (L) price for a product that they both
produce.
 Consider the following variants: Variant 2: firms move simultaneously.
Review: Taxonomy of Games
 Complete and Perfect Information:
Adam decides whether to confess or deny, Bob observes what Adam has done, Bob chooses whether to
confess or deny. The game and all the payoffs are common knowledge.
 Complete and Imperfect Information:
Adam and Bob decide simultaneously whether to confess or deny. The game and all the payoffs are
common knowledge.
 Incomplete and Perfect Information:
Adam decides whether to confess or deny, Bob observes what Adam has done, but Bob does not know
what Adam’s payoffs are (for different types of people the punishment/ the act of confession mean
differently).
 Incomplete and Imperfect Information:
Adam and Bob simultaneously decide whether to confess or deny, but Bob does not know what Adam’s
payoffs are (for different types of people the punishment/ the act of confession mean differently).
Assumptions
 Common Knowledge: For each player i, G is known.
 Rationality: Each player i tries to maximize ui given what he/she thinks the others will do.
 Common Knowledge of Rationality: Each player i knows that other players are rational, and that
the other players know that i is rational, and that i knows they are rational, and so on…
Towards Solving a Game:
Mixed Strategy and Beliefs
Beliefs
 Strategic interaction: Players must think about each other’s strategic choices.
 For example, in PD, each player chooses between strategies C and D.
 Player A may say to himself, “I think Bob is likely to play strategy D” or “I think Bob will surely
play strategy C.”
Beliefs
 Strategic interaction: Players must think about each other’s strategic choices.
 For example, in PD, each player chooses between strategies C and D.
 Player A may say to himself, “I think Bob is likely to play strategy D” or “I think Bob will surely
play strategy C.”
 We use the term belief for a player’s assessment about the strategies of the others in
the game. The above thoughts are two different beliefs.
 We need a precise way of representing a player’s beliefs: use of probabilities.
 Now, we can say, p= likelihood that A thinks the other player will select strategy C in the game
= Probability that B chooses C; p ∈ [0,1]

 p, 1-p define a probability distribution over the set {C, D}.

Beliefs
 Player A’s belief: (p, 1-p) -> B chooses C with probability p
 Not necessarily that A believes that B will be randomizing.
 This belief can be very wrong as well!
 Beliefs
 Player A’s belief: B chooses C with
probability p

 Mathematically, a belief of player i is a

probability distribution over the strategies
of
the other players.

 Recall: 𝑆−𝑖 =
𝑠𝑒𝑡 𝑜𝑓 𝑠𝑡𝑟𝑎𝑡𝑒𝑔𝑖𝑒𝑠 𝑜𝑓 𝑎𝑙𝑙 𝑝𝑙𝑎𝑦𝑒𝑟𝑠 𝑒𝑥𝑐𝑒𝑝𝑡 𝑖

 Then, ∆𝑆−𝑖 =
𝑠𝑒𝑡 𝑜𝑓 𝑎𝑙𝑙 𝑝𝑟𝑜𝑏𝑎𝑏𝑖𝑙𝑖𝑡𝑦 𝑑𝑖𝑠𝑡𝑟𝑖𝑏𝑢𝑡𝑖𝑜𝑛𝑠 𝑜𝑣𝑒𝑟 𝑆−𝑖
=set of beliefs
Beliefs
 𝑆−𝑖 = 𝑠𝑒𝑡 𝑜𝑓 𝑠𝑡𝑟𝑎𝑡𝑒𝑔𝑖𝑒𝑠 𝑜𝑓 𝑎𝑙𝑙 𝑝𝑙𝑎𝑦𝑒𝑟𝑠 𝑒𝑥𝑐𝑒𝑝𝑡 𝑖

 Then, ∆𝑆−𝑖 = 𝑠𝑒𝑡 𝑜𝑓 𝑎𝑙𝑙 𝑝𝑟𝑜𝑏𝑎𝑏𝑖𝑙𝑖𝑡𝑦 𝑑𝑖𝑠𝑡𝑟𝑖𝑏𝑢𝑡𝑖𝑜𝑛𝑠 𝑜𝑣𝑒𝑟 𝑆−𝑖 =set of beliefs

 A belief is one such probability distribution: denoted as 𝜃−𝑖 ∈ ∆𝑆−𝑖

 Properties:
1 ≥ 𝜃−𝑖 ≥ 0

𝜃−𝑖 (𝑠−𝑖 ) = 1
𝑠−𝑖 ∈𝑆−𝑖
Beliefs: Example
 Suppose player 1 and 2 simultaneously play this following game

1/2 Black White Yellow Green

Blue 2,1 1,1 3,2 5,8
Purple 9,1 1,3 1,1 1,0
 Take i=1.
 Notice: all possible pure strategies of everyone except i is 𝑆−𝑖 = {𝐵, 𝑊, 𝑌, 𝐺}
Beliefs: Example
 Suppose player 1 and 2 simultaneously play this following game

1/2 Black White Yellow Green

Blue 2,1 1,1 3,2 5,8
Purple 9,1 1,3 1,1 1,0
 𝑆−𝑖 = {𝐵, 𝑊, 𝑌, 𝐺}
 Suppose player 1 “believes” that player 2 will play B with probability .6, W with .2, Y with .1 and G
with .1.
 Then, this “belief” is a probability distribution over 𝑆−𝑖 : 𝜃−𝑖 ∈ ∆𝑆−𝑖 given by: (0.6,.0.2, 0.1, 0.1)
Value B W Y G
(strategy)
Probability 0.6 0.2 0.1 0.1

Note: 1 ≥ 𝜃−𝑖 ≥ 0 ; 𝑠−𝑖 ∈𝑆−𝑖 𝜃−𝑖 (𝑠−𝑖 ) =1

 Beliefs

Q: Is this a legitimate belief?

 Beliefs

Q: Is this a legitimate belief?

1 2 2
Ans: NO! 𝑠−𝑖 ∈𝑆−𝑖 𝜃−𝑖 (𝑠−𝑖 ) = 3 + 6 = 3 < 1
2 1 1
A proper belief: 𝜃−𝑖 = , 0,0, , 0,
3 6 6
There are infinitely many beliefs.
Expected Payoff
 Next Q: How does a player i evaluate each of her strategies under this kind of strategic uncertainty?

 If a player has a belief: 𝜃−𝑖 ∈ ∆𝑆−𝑖 , for every strategy 𝑠𝑖 that she chooses, she can not be certain of the
payoff that she will get.

 Use of expected payoff to evaluate each strategy 𝑠𝑖

 Expected payoff from playing 𝑠𝑖 𝑤𝑖𝑡ℎ 𝑏𝑒𝑙𝑖𝑒𝑓 𝜃−𝑖 =

𝑢 𝑠𝑖 , 𝜃−𝑖 = 𝜃−𝑖 (𝑠−𝑖 )𝑢𝑖 (𝑠𝑖 , 𝑠−𝑖 ) = 𝐸𝑢 𝑠𝑖 , 𝜃−𝑖
𝑠−𝑖 ∈𝑆−𝑖
Beliefs: Example
1/2 Black White Yellow Green
Blue 2,1 1,1 3,2 5,8
Purple 9,1 1,3 1,1 1,0

 Take i=1. 𝑆𝑖 = 𝐵𝑙, 𝑃 ; 𝑆−𝑖 = {𝐵, 𝑊, 𝑌, 𝐺}

 Suppose 1’s Belief is 𝜃−1 ∈ ∆𝑆−1 given by: (0.6, 0.2, 0.1, 0.1)

 Then, expected payoff for 1 for any pure strategy is given by:

𝑢 𝑠1 = 𝐵𝑙, 𝜃−1 = 2 0.6 + 1 0.2 + 3 0.1 + 5 0.1 = 1.2 + .2 + .3 + .5 = 2.2

𝑢 𝑠1 = 𝑃, 𝜃−1 =?
Beliefs: Example
1/2 Black White Yellow Green
Blue 2,1 1,1 3,2 5,8
Purple 9,1 1,3 1,1 1,0

 Take i=1. 𝑆𝑖 = 𝐵𝑙, 𝑃 ; 𝑆−𝑖 = {𝐵, 𝑊, 𝑌, 𝐺}

 Suppose 1’s Belief is 𝜃−1 ∈ ∆𝑆−1 given by: (0.6, 0.2, 0.1, 0.1)

 Then, expected payoff for 1 for any pure strategy is given by:

𝑢 𝑠1 = 𝐵𝑙, 𝜃−1 = 2 0.6 + 1 0.2 + 3 0.1 + 5 0.1 = 1.2 + .2 + .3 + .5 = 2.2

𝑢 𝑠1 = 𝑃, 𝜃−1 = 9 0.6 + 1 0.2 + 1 0.1 + 1 0.1 = 5.4 + .2 + .1 + .1 = 5.8

 Note that all the while 1 actually does not know if 2 will behave according to this belief!
Mixed Strategy
 Mixed strategy: when a player selects strategies according to a probability distribution

 Adam might think: I will Confess half the times and Deny otherwise (that is, choose C with probability
=1/2 )

 A mixed strategy is denoted by: 𝜎𝑖 ∈ ∆𝑆𝑖

1 1
 Above example: 𝜎𝐴 = (2 , 2) over the set 𝑆𝐴 = {𝐶, 𝐷}

 A regular strategy is called “Pure strategy”, it is a mixed strategy where probability of choosing the
particular action is 1 or 0.

 So, if Adam always chooses to Confess, it is a “pure strategy”, or a mixed strategy 𝜎𝐴 = (1,0)
 Including mixed strategies expand the set of all possible strategies available to a player.
Mixed Strategy: Example
1/2 Black White Yellow Green
Blue 2,1 1,1 3,2 5,8
Purple 9,1 1,3 1,1 1,0

 Take i=1. 𝑆𝑖 = 𝐵𝑙, 𝑃 ; 𝑆−𝑖 = {𝐵, 𝑊, 𝑌, 𝐺}

 Suppose 1’s Belief is 𝜃−𝑖 ∈ ∆𝑆−𝑖 given by: (0.6, 0.2, 0.1, 0.1). Associated expected payoffs for 1 for
any pure strategy is given by:
𝑢 𝑠1 = 𝐵𝑙, 𝜃−𝑖 = 2.2; 𝑢 𝑠1 = 𝑃, 𝜃−𝑖 = 5.8

 Now, suppose 1 wants to play Bl with 0.6 probability and P with 0.4 probability. So,
𝜎1 = (0.6, 0.4) ∈ ∆𝑆1

 Then, the expected payoff for 1 from this mixed strategy 𝜎1 is:
𝑢 𝜎1 , 𝜃−1 = 2.2 0.6 + 5.8 0.4 = 3.64
Mixed Strategy: PD Example
Adam\Bob Deny Confess
Deny -1,-1 -3,0
Confess 0,-3 -2,-2

 Take i=B. 𝑆𝐵 = 𝐶, 𝐷 ; 𝑆−𝑖 = 𝑆−𝐵 = 𝐶, 𝐷

 Now, suppose B wants to play C with 0.5 probability and D with 0.5 probability. So,
𝜎𝐵 = (0.5, 0.5) ∈ ∆𝑆𝐵

 Also assume B believes that A will always Confess. So, 𝜃−𝐵 = (1,0)

 Then, the expected payoff for B from this mixed strategy 𝜎𝐵 is:
𝐸𝑢 𝜎𝐵 , 𝜃−𝐵 = −3 0.5 + −2 0.5 = −2.5
Do It Yourself
 Wilson Ch 4: Guided Exercise, Q 1, 3.
Solving a Game: PD Example
Adam\Bob Deny Confess
Deny -1,-1 -3,0
Confess 0,-3 -2,-2

 You are Adam. Suppose you know Bob is going to Deny. What should you do?
Solving a Game: PD Example
Adam\Bob Deny Confess
Deny -1,-1 -3,0
Confess 0,-3 -2,-2

 You are Adam. Suppose you know Bob is going to Deny. What should you do?
 Choose C, because 0>-1
 What if you knew that Bob is going to Confess. What should you do then?
Solving a Game : PD Example
Adam\Bob Deny Confess
Deny -1,-1 -3,0
Confess 0,-3 -2,-2

 You are Adam. Suppose you know Bob is going to Deny. What should you do?
 Choose C, because 0>-1

 What if you knew that Bob is going to Confess. What should you do then?
 Choose C, because -2>-3

 So, if you are Adam, no matter what Bob does, you should always choose C!
 Check for Bob, same is true!
 C is dominant strategy for both A and B! D is dominated by C.
 Technically, we say that strategy D is dominated by strategy C, and thus D should never be played by a
rational player A.
The Curious Case of Prisoners’ Dilemma
Adam\Bob Deny Confess
Deny -1,-1 -3,0
Confess 0,-3 -2,-2

 D is strictly dominated by both A and B.

 So, they both play C.
 Outcome of the game: (C,C).
 Resultant Payoffs: (-2,-2)
 Notice, this is Pareto inefficient! (D, D) would have been better for both!
 However, each has the individual incentive to defect by choosing C. Because the players select their
strategies simultaneously and independently, individual incentives win.
 Used to model many socio economic scenario, like group projects, tragedy of commons, etc…
(Page 54-55 W)
Dominant Strategy: Example 2
 Look at Player 1. D is strictly dominated by M
 U is NOT dominated by M
 U weakly dominates D
Dominant Strategy: Example 2
 Look at Player 1. D is strictly dominated by M
 Thus, a rational player 1 should never play D
 U is NOT dominated by M
 U weakly dominates D
Dominance by Mixed Strategy: Example
 Q: For player 1, is there any pure strategy that dominates
another pure strategy?
Dominance by Mixed Strategy: Example
 Q: For player 1, is there any pure strategy that dominates
another pure strategy?
 Ans: NO!
 For instance, although U is better than D when player 2
selects L, D performs better than U when player 2 selects R
 However, a mixed strategy dominates D.
Dominance by Mixed Strategy: Example
 For player 1, no pure strategy dominates another pure
strategy.
 However, a mixed strategy dominates D.

 Consider player 1’s mixed strategy of selecting U with

probability 0.5, M with probability 0.5, and D with
probability zero: 𝜎1 = 0.5,0.5,0

 Now, if 2 plays L, expected payoff for 1:

𝑢 𝜎1 , 𝐿 = 4 .5 + 0 0.5 = 2 > 𝑢 𝐷, 𝐿 = 1

 if 2 plays R, expected payoff for 1:

𝑢 𝜎1 , 𝑅 = 0 .5 + 4 0.5 = 2 > 𝑢 𝐷, 𝑅 = 1

 So, 𝜎1 strictly dominates D!

Definitions
 A pure strategy 𝑠𝑖 of player i is (strictly) dominated if there is a strategy (pure or mixed) 𝜎𝑖 ∈ ∆𝑆𝑖
such that
𝑢 𝜎𝑖 , 𝑠−𝑖 > 𝑢(𝑠𝑖 , 𝑠−𝑖 )
for all strategy profiles 𝑠−𝑖 ∈ 𝑆−𝑖 of the other players.

 A pure strategy 𝑠𝑖 ∈ 𝑆𝑖 of player i is (strictly) undominated if there exists no pure or mixed strategy
𝜎𝑖 such that
𝑢 𝜎𝑖 , 𝑠−𝑖 > 𝑢(𝑠𝑖 , 𝑠−𝑖 )
for all strategy profiles 𝑠−𝑖 ∈ 𝑆−𝑖 of the other players.

 Players never play dominated strategies.

Definitions
 A pure strategy 𝑠𝑖 ∈ 𝑆𝑖 of player i is (strictly) undominated if there exists no pure or mixed strategy
𝜎𝑖 such that
𝑢 𝜎𝑖 , 𝑠−𝑖 > 𝑢(𝑠𝑖 , 𝑠−𝑖 )
for all strategy profiles 𝑠−𝑖 ∈ 𝑆−𝑖 of the other players.

 The set of undominated strategies is denoted by

𝑈𝐷𝑖 = {𝑠𝑖 |∄𝜎𝑖 ∈ ∆𝑆𝑖 𝑠𝑢𝑐ℎ 𝑡ℎ𝑎𝑡 𝑢 𝜎𝑖 , 𝑠−𝑖 > 𝑢 𝑠𝑖 , 𝑠−𝑖 ∀𝑠−𝑖 ∈ 𝑆−𝑖 }

Notation: ∄ : there does not exist

∀: for all
∈∶ belongs to
Definitions
 A pure strategy 𝑠𝑖 of player i is (strictly) dominated if there is a strategy (pure or mixed) 𝜎𝑖 ∈ ∆𝑆𝑖
such that
𝑢 𝜎𝑖 , 𝑠−𝑖 > 𝑢(𝑠𝑖 , 𝑠−𝑖 )
for all strategy profiles 𝑠−𝑖 ∈ 𝑆−𝑖 of the other players.

 A strategy (pure or mixed) 𝜎𝑖 ∈ ∆𝑆𝑖 of player i (strictly) dominates a pure strategy 𝑠𝑖 if for all strategy
profiles 𝑠−𝑖 ∈ 𝑆−𝑖 of the other players
𝑢 𝜎𝑖 , 𝑠−𝑖 > 𝑢(𝑠𝑖 , 𝑠−𝑖 )

 Players never play dominated strategies.

 In both definitions, replacing > with ≥ will get us “weak dominance”

 We can not always rule out “weakly dominated” strategies, unlike the strictly dominated ones.
Next Class
 Iterated Dominance and Rationalizability
 Best Reponse