Game Theory Bayesian Games at

Game Theory Bayesian Games
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 In games of complete information, the
players know not only their own preferences,
but also the preferences of other players as
well.
 In many situations of economic interest,
however, there is likely to be considerable

uncertainty on the part of each player
regarding the preferences of his or her
opponents.
 To incorporate this possibility, we introduce
Bayesian Games, or games of incomplete
information.
 Complete games are characterized by three
things: players, actions and payoffs. Bayesian

Games build on the static games of complete
information.
 In Bayesian Games, each player can be one of
a certain number of types.
 Each player knows his or her own type, but
cannot observe the type of the other players

directly.
 From the perspective of a given player the
others’ types are random draws from some

given prior distribution.
 The type of a player influences that player in
two ways.
 First, the player’s payoff in the game can
depend on both the actions chosen, and on

the types of all players.
 Thus, the combination of types influences
each player’s payoff.
 Second, each type of each player has its own
set of possible actions in the game, but we
frequently assume that the set of possible
actions does not depend on the type of
player.
 Given his type, each player in the game
selects an action from those available.
 Similar to dynamic games, in Bayesian Games
a strategy for each player is a plan which
specifies an action for each possible type.
 Knowing another player’s strategy in a
Bayesian Game does not yet allow a player to

predict the other’s action for certain, because
other players’ type is unknown.
 However, given the other player’s strategy
and the player’s prior distribution each player
can figure out his or her expected payoff
from the actions that are available to him or
her.
 Of the actions available, each player will
choose some particular action.
 Therefore, given his or her type, the strategy
of each player and the prior distribution, each

player can figure out his or her expected
payoff from the actions that are available to
him or her.
 Of the actions available, each player can
therefore figure out a best possible action or
actions for each of his or her own types.
 The best possible action for each of his or her
types is a player’s best responses to each

other then the strategies constitute a
Bayesian Nash Equilibrium.
Take It Or Leave It Offer
 An Example of Bayesian Game: Take It Or
Leave It Offer
 As in the standard Take it or leave it offer
game, there are two players: a buyer and a

seller. Each player’s type is his value for the
good, vB; vS.
 Both values are independent draws form a
uniform distribution on [0; 1] ;so that
Pr (vi ≤ x) = x.
 The buyer is given the opportunity to make a
take it or leave it offer to the seller of a price

p at which he or she will be willing to buy the
good.
 If the price exceeds the seller’s value, then
the seller accepts, if it isn’t the seller rejects
the proposal.
 What price will the buyer choose? Given his or
her value vB the buyer selects her price to

maximize her expected payoff
Max Pr (vS > p) (vB - p) =
max p (vB - p)
p* = vB/2
 Thus the buyer "shades" her bid by half in
order to trade o¤ the chance that her offer is
rejected with her payoff if it is accepted.
 This leads to a outcomes that can be bad
socially.
 If the seller’s value were known, whenever the
buyer’s value was larger the parties would
transact.
 Thus the party who values the good most
would always receive it and the collective

payoff is as large as possible.
 When the seller’s value is unknown, the buyer
shades his bid, so in order for trade to occur,
the buyer’s value has to be larger than twice
the seller’s value, which occurs less often.
 Thus, because a value is private, it is more
difficult to trade and the collective good is

harmed.
 For more details you can visit our website at
http://www.helpwithassignment.com/econo
mics-assignment-help
and http://www.helpwiththesis.com
Thank You

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Game Theory Bayesian Games

however, there is likely to be considerable

things: players, actions and payoffs. Bayesian

cannot observe the type of the other players

others’ types are random draws from some

depend on both the actions chosen, and on

each player’s payoff.

selects an action from those available.

Bayesian Game does not yet allow a player to

of each player and the prior distribution, each

types is a player’s best responses to each

game, there are two players: a buyer and a

take it or leave it offer to the seller of a price

her value vB the buyer selects her price to

Max Pr (vS > p) (vB - p) =

max p (vB - p)

would always receive it and the collective

difficult to trade and the collective good is

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