Lecture 5: Existence of Nash Equilibria and Mixed

Strategies
Vera Sharunova

1 Last Time: Commitment Strategies

In the previous lecture, we noted that one of the players in the chicken game can try to
maintain a reputation for being a “tough guy” and ensure that their preferred equilib-
rium will be played. The next section introduces two real-life examples of commitment
strategies.

Examples of Commitment
The following two videos from a British TV show called Golden Balls give us an idea of
how players can use commitment to stir the game towards the outcome they prefer.

Practice Question. Video 1 from Golden Balls

Q: Set up the game from the video in the normal form.

Player 2
Split Steal
Split £20,000, £20,000 £0, £40,000+
Player 1
Steal £40,000, £0 + £0, £0 +

Q: What are the Nash equilibria of this game? This game has three Nash equilibria
(Steal, Split), (Split, Steal), (Steal, Steal).

Q: How can you rationalize someone choosing Split from a behavioral perspective? Play-
ers may think something like: “Ok, but what if there is a small chance that the other
will split with me?” However, if that is the case, the player is better off by stealing!

Another video Video 2 from Golden Balls is an example of an outside-the-box commit-

ment strategy that results in an outcome of the game that is not a Nash equilibrium.

Q: Do you think cooperation in this case is a one-off thing? It turns out no. Van
den Assem et al. (2012) use the data generated by this TV show in order to study

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agents’ cooperative behavior outside of laboratory settings. This game presents a unique
opportunity because the stakes are a lot higher than in a typical lab experiment. In their
sample, individual players on average cooperate 53% of the time.

2 Relevance of Nash Equilibria

These videos bring our attention to two important points concerning the relevance of
Nash equilibria. Firstly, is the concept of Nash equilibrium such a powerful predictive
tool if there could be many Nash equilibria? Secondly, how can we explain the fact that
a non-equilibrium outcome was played 53 times out of 100? This apparent inconsistency
exists only if we consider the so-called pure-strategy Nash equilibria. A pure strategy
is a strategy that is played by an agent with probability one. The concept of a pure-
strategy Nash equilibrium requires us to be confident in other person’s choice. Naturally,
this requirement is hard to satisfy, especially if there are multiple pure Nash equilibria.
However, we can still incorporate uncertainty about the opponent’s actions into our
analysis by allowing players to choose strategies using a random device. In game theory,
such strategies are called mixed strategies and introducing them into our toolkit will
help us understand why people may find themselves in a non-equilibrium outcome and
give a new interpretation to multiple Nash equilibria.

3 Existence of Nash Equilibria

In 1950, John Nash proved the a theorem that stated that in any finite game, i.e. a
game with a finite number of players that each have a finite number of strategies, there
exists at least one Nash equilibrium. So we are almost always guaranteed to come across
a Nash equilibrium. Let us consider a game that is familiar to all of us since childhood
– Rock-Paper-Scissors.

3.1 Rock-Paper-Scissors
Let’s start by representing this game in normal form, assuming that winning yields a
payoff of 1, drawing – a payoff of 0, and losing – a payoff of -1.

Player 2
Rock Paper Scissors
Rock 0, 0 -1, 1| 1, -1−
Player 1 Paper 1, -1− 0, 0 -1, 1|
Scissors -1, 1| 1, -1− 0, 0

After analyzing best responses for both players, we conclude that there is no pair of
strategies that are best responses to each other, therefore this game has no pure-strategy

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Nash equilibria.

Q: Have we found another drawback of the Nash equilibrium concept and disproved Nash’s
existence theorem? No, we can make it all work again if we extend our scope to mixed
strategies as well.

Q: What should you not do in the Rock-Paper-Scissors game? The absence of pure Nash
equilibrium tells us what not to do: Each player should neither always nor systematically
pick the same strategy when faced with a zero-sum game.

Q: What should you do in the Rock-Paper-Scissors game? Randomize as much as possi-

ble, i.e. play each strategy with probability 1/3. The mixed-strategy Nash equilibrium
(MNE) of the Rock-Paper-Scissors game is ( 13 R + 13 P + 13 S, 31 R + 13 P + 13 S).

Q: What can we notice about the payoff structure of such games? The sum of payoffs in
each cell adds up to zero. Such games are called zero-sum games and describe general
payoff structures in which there are typically no pure-strategy Nash equilibria.

Q: What kind of economic incentives does this payoff structure capture? Recall that
coordination games describe situation in which players have common, completely or
partially, interests. Zero-sum games capture purely competitive situations, where one
player’s gain is another player’s loss. Zero-sum games are games in which there are no
pure-strategy Nash equilibria.

4 Mixed Strategies and Their Interpretation

We guessed the MNE of the Rock-Paper-Scissors game to be ( 31 R+ 13 P+ 13 S, 13 R+ 31 P+ 13 S).
How can we interpret this equilibrium? We can interpret mixed strategies in several
ways, depending on the context. All of these interpretations are instructive in gauging
the intuition for what mixed strategies are.

• One-shot game: If a player follows a mixed strategy, it means that they are
using some kind of random device, e.g. flipping a coin or rolling a die, to decide
which pure strategy to use. The mixture is then the probability distribution over
states that the random device can be in (e.g. 50%-50% for two faces of a coin or
1/6 probability for a six-sided die to show a particular number).
• Repeated games: A mixed strategy of a player can be interpreted as a frequency
with which the player is choosing a particular pure strategy over a series of the
games.
• Fraction in a population: If a game is played multiple times in a general pop-
ulation among different players (rather than being repeated multiple times among

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the same set of players), mixed strategies can be interpreted as fractions of players
that choose a particular pure strategy across all games.

4.1 Television Programming Game

Consider two TV networks, for example NBC and CBS, competing for viewership by
choosing different programming options.1 For simplicity, assume that the two choices
are running either a sitcom or a sports program. Assume also that networks’ objective
is to maximize their viewership. The four possible outcomes of the game are represented
in the payoff matrix below.

CBS
Sitcom Sports
−
Sitcom 56%, 44% 47%, 53%|
NBC |
Sports 46%, 54% 48%, 52%−

After going through the best response analysis for both TV networks, we see that this
game, like the Rock-Paper-Scissors game, has no pure-strategy Nash equilibria.

Q: Is there any similarity in the payoff structures of the two games? We can notice that
the market share percentages for each outcome add up to 100 percent, making this a
constant-sum game.

It turns out that it is not a coincidence that this constant-sum game behaves similar
to the zero-sum Rock-Paper-Scissors game. We can show that every constant-sum
game can be transformed to a zero-sum game without changing the nature
of the contest.

Consider any outcome pair in the constant-sum game. Let’s denote this pair (u1 , u2 ).
Since the game is constant-sum, every such outcome pair adds up to the same constant
c. Let us transform the outcome (u1 , u2 ) into an outcome (v1 , v2 ) by using the following
trick: let v1 = 2u1 − c and let v2 = 2u2 − c. Verify that v1 + v2 = 0,

v1 + v2 = 2u1 − c + 2u2 − c = 2(u1 + u2 ) − 2c = 0.

Therefore, we have just shown that each constant-sum game is equivalent to a zero-sum
game. I wanted to make this point explicit because, often times, you will see zero-sum
games contrasted with non-zero-sum games; the actual distinction should be made along
the constant-sum vs. non-constant-sum dimension.

Let us now rewrite the payoff matrix as

1
See Chapter 3 of Complete Idiot’s Guide to Game Theory by Edward C. Rosenthal.

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CBS
Sitcom Sports
−
Sitcom 12, -12 -6, 6|
NBC
Sports -8, 8| -4, 4−

Q: What interpretation do the new numbers have? The pairs of numbers in each cell
represent the number of percentage points one of the networks is ahead or behind the
other network.

References
[1] Van den Assem, M. J., Van Dolder, D., and Thaler, R. H. (2012). Split or steal?
Cooperative behavior when the stakes are large. Management Science, 58(1), pp.2-
20.