Go, change the world

GAME THEORY(18CS7F2)
7th Semester,
CSE department
Faculty: Anitha Sandeep

UNIT-2
 Go, change the world

Contents
• Mixed Strategy Equilibrium:
Introduction
Strategic games in which players may randomize
Mixed strategy Nash equilibrium
Equivalent strategic games with vNM preferences
Dominated actions
Pure equilibria when randomization is allowed
Illustration: Expert Diagnosis
Illustration: Reporting a crime
Equilibrium in a single population
The formation of players’ beliefs
Extensions; Representing preferences by expected payoffs.
 Go, change the world

Mixed Strategy Equilibrium- Introduction

The game is played over and over.
NE is a stable, steady state situation.
A pair of states can remain steady states only if they are optimal to each
other. Otherwise if A is not optimal wrt B in the next play of the game, player
who is in A’s action will change his action because that is not optimal given
other player is playing B. Here action does not remain same, instead the
probabilities remain same/constant, then that is called mixed NE.
Player is allowed to attach a probability<1 with each action – Randomization
Here it is not that ak* is played repeatedly, but his probability distribution
over the action set is going to be constant. It is not that action is remaining
constant but the chances that the actions have of being played will remain
constant.
 Go, change the world

• Uniqueness: Suppose a and b are actions such that a is preferred over

b.
Suppose

Lotteries---> 1 2
a p q
b 1-p 1-q

If p>q, then probability distribution1 will be preferred to distribution2.

 Go, change the world
To show ((½ ,½) (½ ,½)) is MSNE of matching pennies game
Ex: In matching pennies game, there is no pure
strategy NE. But (( () is MSNE.
Proof: Let player1 plays H and Tail with
probabilities p and (1-p) p
and player 2 plays H and Tail with
probabilities . (1-p)
Then P(P1 get 1Rs) = {(H,H), (T,T)} Since (H,H), (T,T) are mutually exclusive,
= P(H,H)+ P(T,T)
= p + (1-p) =
Similarly,
P(P1 looses 1Rs) = {(H,T), (T,H)} Since (H,T), (T,H) are mutually exclusive,
= P(H,T)+ P(T,H)
= p + (1-p) =
 Go, change the world

q (1-q)

Similarly for player2,

Then P(P2 get 1Rs) = {(H,T), (T,H)} Since (H,T), (T,H) are mutually exclusive,
= P(H,T)+ P(T,H)
= (1-q) + q =
Similarly,
P(P2looses 1Rs) ={(H,H), (T,T)} Since (H,H), (T,T) are mutually exclusive,
= P(H,H)+ P(T,T)
= q + (1-q) =
p= , q= is a MSNE.
 Go, change the world

Finding MSNE of various games

1. Find MSNE of BoS game.
Soln: Let player1 plays B and O with probabilities p and (1-p)
player2 plays B and O with probabilities q and (1-q)
Pay off to player1 = 2pq+(1-p)(1-q) q 1-q
 Max [2pq+(1-p)(1-q)]=0

 [2pq+1+pq-p-q]=0 p

⇒ [3pq+1-p-q]=0 (1-p)
⇒3q-1=0 ⇒ q= ⅓
 Go, change the world

Pay off to player2 = pq+2(1-p)(1-q)

 Max [pq+2(1-p)(1-q)]=0

 [pq+2+2pq-2p-2q]=0
⇒ [3pq+2-2p-2q]=0
⇒3p-2=0 ⇒ p= 2⁄3

Ie., ((,)(,))is MSNE

 Go, change the world
Mixed strategy Nash equilibrium(MSNE)
Definitions:
1. Mixed strategy: For each player i, mixed strategy is a probability
distribution over her set of actions αi , if ai ϵ Ai , then αi(ai) tells the
probability attached to ai.
NOTE: if αi(ai)=1, then it becomes pure strategy.
2. Mixed strategy Nash equilibrium: Mixed strategy profile
α = (α1, α2, α3, ……… αn) is collection of different mixed strategies of n-
players.
Then, α* is a MSNE, iff for each player i, Ui(α*)≥ Ui(αi, α*-i) for every mixed
strategy αi of player i, where Ui(α) is the expected value of payoff of MS
profile α to player i. That is pay off to each player from α* is never less than
the pay off to that player, if he takes some other mixed strategy, which he
can take, which is a feasible mixed strategy and this happens for each player.
 Go, change the world

3. Von Neumann Morgenstern preferences(vNM preferences): It deals

with uncertain situations. Suppose 3 outcomes x, y, z can occur with
probabilities p1,p2,p3 with p1+p2+p3=1. For a player if she get the
following pay off from above lottery, u1(x, y, z : p1, p2, p3 ) = p1 u1(x)+
p2 u1(y)+ p3 u1(z) then the preference is called Von Neumann
Morgenstern preferences.
4. Best response function: Best response function of player i is the set
of players best mixed strategies when the list of other players mixed
strategies is α-i. ie., αi=Bi(α-i).
 Go, change the world

Finding MSNE using Best responses

1. Find MSNE of BoS game using best responses.
Soln: Let player1 plays B and O with probabilities p and (1-p) ⇒ α1= (p,1-p)
player2 plays B and O with probabilities q and (1-q) ⇒ α2= (q,1-q)
E1(B, α2) =2q + 0(1-q) = 2q q (1-q)
H/W B(q) O(1-q)
E1(O, α2) =0(q)+1(1-q) = 1-q
B (2,1) (0,0)
If 2q > 1-q ⇒ 3q >1 ⇒ q> ⅓  ⇒ p=1 O (0,0) (1,2)
p
ie.,when player 2 plays α2 with q> ⅓, then player1 1-p
playing B is the best response.
Similarly if 2q < 1-q ⇒ 3q <1 ⇒ q< ⅓  ⇒ p=0
ie.,when player 2 plays α2 with q< ⅓, then player1 playing O is the best
response.
 Go, change the world

If 2q = 1-q ⇒ 3q =1 ⇒ q = ⅓  ⇒ pϵ[0,1]
Means, player1 can attach any probability to p between 0 and 1, he is
indifferent between B and O.
E2(α1,B) = 1(p)+0(1-p) = p
E2(α1,O) =0(p)+2(1-p) = 2(1-p) = 2-2p
i)If p > 2-2p ⇒ 3p >2 ⇒ p> ⅔  ⇒ q=1

ie.,when player1 plays α1 with p> ⅔, then player2 playing B is the best
response.
ii)Similarly if p < 2-2p ⇒ 3p <2 ⇒ p< ⅔  ⇒ q=0
ie.,when player 1 plays α1 with p< ⅔, then player2 playing O is the best
response.
iii) If p = 2-2p ⇒ 3p =2 ⇒ p= ⅔  ⇒ qϵ[0,1]
 Go, change the world

0 : if q < ⅓ 0 : if p < ⅔
B1(α2) = p : 0≤p≤1 if q = ⅓ B2(α2) = q : 0≤q≤1 if p = ⅔
1 : if q > ⅓ 1 : if p >⅔
,⅓),(1,1)
 Go, change the world

Problems on finding MSNE

1. Find all NE of PD game.
2. Find all NE of Matching Pennies game.
3. Find all NE of Stag hunt game.
4. Find all NE of Hawk dove game.
 Go, change the world

MSNE
• The payoff of each player is the weighted average of the expected
payoff from his pure strategies.
• A players expected payoff to mixed strategy profile α is a weighted
average of her expected payoffs to all mixed strategy profiles of the
type (ai, α-i) where the weight attached to (ai, α-i) is the probability
αi(ai) assigned to ai by player’s I mixed strategy αi.
 Go, change the world

Characteristics of MSNE
Characteristics of MSNE
A MS profile α* in which each player has finitely many actions is a
MSNE iff for each i,
1. The expected payoff given α-i* to every action to which αi* assigns
+ve probability is the same.
2. The expected payoff, given α-i* to every action to which i assigns zero
probability is at most the expected payoff to any action to which αi*
assigns +ve probability.
 Go, change the world

1. Show That the following game has MSNE at α1= (¾,0, ¼),
α2= (0, ⅓,  ⅔)
P1/P2 L M R
Soln: T ( , 2) (3, 3) (1, 1) ¾

Here, for Player1, M (. , .) (0, .) (2, .) 0

a) For actions T & D, the D (. , 4) (5, 1) (0, 7) ¼
probabilities are +ve. So their expected payoff’s 0 ⅓ ⅔
to T & D must be equal.
E1(T, α2)= 3 x ⅓ + 1 x ⅔ = 1 + ⅔ = 5/3
E1(D, α2)= 5 x ⅓ = 5/3.
b) For M, probability is 0. So the expected payoff to M must be at most
equal to payoff actions which have positive probability {T, D}.
E1(M, α2)=2 x ⅔ = 4/3 < 5/3
 Go, change the world

P1/P2 L M R
Here, for Player2,
T ( , 2) (3, 3) (1, 1) ¾
a) For actions M & R, the
probabilities are +ve. So their expected payoff’s
M (. , .) (0, .) (2, .) 0
to M & R must be equal. B (. , 4) (5, 1) (0, 7) ¼
0 ⅓ ⅔
E2(α1,M)=3 x ¾ + 1 x ¼ = 9/4 + 1/4 = 5/2
E2(α1,R)=1 x ¾ + 7 x ¼ = ¾ + 7/4 = 5/2
b) For L, probability is 0. So the expected payoff to L must be at most
equal to payoff actions which have positive probability { M,R}.
E2(α1,L)=2 x ¾ + 4 x ¼ = 5/2
 Go, change the world

P1/P2-> B O X
2. Find all MSNE of variant BoS.
B (4,2) (0,0) (0,1)

O (0,0) (2,4) (1,3)

P1/P2-> L M R
3. Find all MSNE of following.
T (2, 2) (0, 3) (1, 3)

B (3, 2) (1,1) (0, 2)

4. Check if MS (⅔, ⅓ ; 0, ½ ,½) constitute a NE for the game:

P1/P2-> L M R

T (2, 2) (0, 3) (1, 2)

B (3, 1) (1,0) (0, 2)

 Go, change the world

Find all MSNE of variant BoS

Game table : H/W B O X

B (4,2) (0,0) (0,1)

O (0,0) (2,4) (1,3)

Soln:
Case 1: Player 1’s strategy is pure
Player 2 assigns positive probabilities to 2 or all her actions
If player1 choose B, then player2 expected payoff on B, O and X are
different (2,0,1)
Also if player1 choose O, then player2 expected payoff on B, O and X are
different (0,4,3)
∴ no NE
 Go, change the world

Case 2: Player 2’s strategy is pure

Player 1 assigns positive probabilities to both his actions
If player2 choose B, then player1 expected payoff on B, O are different
(4,0)
Also if player2 choose O, then player1 expected payoff on B, O are
different (0,2)
Also if player2 choose X, then player1 expected payoff on B, O are
different (0,1)
∴ no NE
Case 3: Player 1 chooses +ve probability to both actions &
Player 2 assigns positive probabilities to 2 out of 3 actions
 Go, change the world
Case 3a) player 2 chooses +ve probabilities with B,O & 0 probability
with X
E2(α1, B) = 2p E2(α1, O) = 4(1-p) E2(α1, X) = p + 3(1-p)
According to characteristics of MSNE,
E2(α1, B) = E2(α1, O) ≥ E2(α1, X)
2p = 4(1-p) ≥ p + 3(1-p)
⇒ 2p = 4-4p ≥ 3-2p
⇒ p = ⅔ & does not satisfy inequality
∴ no NE
 Go, change the world
Case 3b) player 2 chooses +ve probabilities with B,X & 0 probability
with O
E2(α1, B) = 2p E2(α1, O) = 4(1-p) E2(α1, X) = p + 3(1-p)
According to characteristics of MSNE,
E2(α1, B) = E2(α1, X) ≥ E2(α1, O)
2p = p+3(1-p) ≥ 4(1-p)
⇒ 2p = 3-2p ≥ 4-4p
⇒ p = ¾ & satisfy inequality
For player1, E1(B, α2) = E1(O, α2)
4q = 1-q
⇒q= ⅕
∴ ((¾, ¼) ; (⅕,0, ⅘)) is MSNE
 Go, change the world
Case 3c) player 2 chooses +ve probabilities with O,X & 0 probability
with B
E2(α1, B) = 2p E2(α1, O) = 4(1-p) E2(α1, X) = p + 3(1-p)
According to characteristics of MSNE,
E2(α1, O) = E2(α1, X) ≥ E2(α1, B)
4-4p = 3-2p ≥ 2p
⇒ p = ½ & satisfy inequality
Now for player1, E1(B, α2) = E1(O, α2)
0 = 2q+1+1-q
⇒q= -1 But q should be +ve.
∴ no NE.
 Go, change the world
Case 4) Both players assign +ve probabilities to all their actions with
α1 = (p,1-p)
E1(α1, B) = 2p E2(α1, O) = 4(1-p) E2(α1, X) = p + 3(1-p)
According to characteristics of MSNE,
E2(α1, B) = E2(α1, O) = E2(α1, X)
2p = 4-4p = 3-2p
⇒ p=⅔ from 2p = 4-4p
⇒ p = ½ from 4-4p = 3-2p
⅔≠½
∴ no NE.
∴ MSNE: ((1,0),(1,0,0)), ((0,1)(0,1,0)), ((¾, ¼) ; (⅕,0, ⅘)) .
 Go, change the world

Ex:
Find all MSNE of following game: P1/P2-> L M R

T (2, 2) (0, 3) (1, 3)

B (3, 2) (1,1) (0, 2)

Ans: MSNE: ((0,1)(1,0,0)), ((1,0)(0,0,1)), (1,0)(0,½, ½)),((0,1)(½,0, ½))

 Go, change the world

Equivalent strategic games with ordinal

preferences
H/W B S H/W B S H/W B S
B (2,1) (0,0) B (4,0) (0,-3) B (3,2) (0,1)
S (0,0) (1,2) S (0,-3) (2,3) S (0,1) (1,4)
(a) (b) (c)

With respect to ordinal preferences, all games are equivalent, Since

preferences in each case are same.
That is P1 preferences : u1(B,B)>u1(S,S)>u1(S,B) = u1(B,S)
P2 preferences : u2(S,S)> u2(B,B)>u2(S,B) = u2(B,S) in all the games
 Go, change the world

Equivalent strategic games with vNM

preferences
H/W B S H/W B S H/W B S
B (2,1) (0,0) B (4,0) (0,-3) B (3,2) (0,1)
S (0,0) (1,2) S (0,-3) (2,3) S (0,1) (1,4)
(a) (b) (c)

Wrt ordinal preferences, (a),(b) and (c) represent same game.

But with vNM preferences, only (a),(b) are equivalent. Because the
payoff functions in (b) are linear functions of payoff functions in the (a)
where as payoff function in (c) are not.
In Bernoulli payoff functions of player1 in (a),(b) and (c) are ui, vi, wi
then here v1(a)=2u1(a) and v2(a)= -3+3u2(a)
 Go, change the world

In general, to say that two games (a) & (b) with ui and vi representing
Bernoulli payoff are said to be equivalent whenever vi(a)= for each
action pair a.
Ex: which of the tables below represent same strategic game with vNM
preferences as PD when numbers are interpreted as Bernoulli payoffs?
P1/P2-> NC C P1/P2-> NC C
NC (3,3) (0,4) NC (6,0) (0,2)

C (4,0) (2,2) C (9,-4) (3,-2)

(a) (b)

Ans: (b) is equivalent to PD.

 Go, change the world

Soln: Original PD game table is P1/P2-> NC C

NC (2,2) (0,3)
Whose payoff function is u.
C (3,0) (1,1)

Let other two tables below (a) and (b), payoff functions be v and w.
Now, for player1, for (a)
P1/P2-> NC C P1/P2-> NC C
v1(NC,C)=0 & u1(NC,C)=0 NC (3,3) (0,4) NC (6,0) (0,2)

v1(NC,C)= ⴄ + Ө 0 C (4,0) (2,2) C (9,-4) (3,-2)

From this we get ⴄ = 0 (a) (b)

v1(C,C)=2 & u1(C,C)=1

v1(C,C)= ⴄ+ Ө 1 = 0 + Ө 1 = 2
From this we get Ө=2
v1(NC,NC)=3 & u1(NC,NC)=2
v1(NC,NC)= ⴄ+ Ө 2 = 0 + 2 (2) = 4 ≠ 3 So, (a) is not equivalent to PD.
 Go, change the world
P1/P2-> NC C

NC (2,2) (0,3)

C (3,0) (1,1)

Let other two tables below (a) and (b), payoff functions be v and w.
Now, for player1, for (b)
P1/P2-> NC C P1/P2-> NC C
w1(NC,C)=0 & u1(NC,C)=0 NC (3,3) (0,4) NC (6,0) (0,2)

w1(NC,C)= ⴄ + Ө 0 C (4,0) (2,2) C (9,-4) (3,-2)

From this we get ⴄ = 0 (a) (b)

w1(C,C)=3 & u1(C,C)=1

w1(C,C)= ⴄ+ Ө 1 = 0 + Ө 1 = 3
From this we get Ө=3
w1(NC,NC)=6 & u1(NC,NC)=2
w1(NC,NC)= ⴄ+ Ө 2 = 0 + 3 (2) = 6 =6 So, (a) is not equivalent to PD.
 Go, change the world
P1/P2-> NC C

NC (2,2) (0,3)

C (3,0) (1,1)

Let other two tables below (a) and (b), payoff functions be v and w.
Now, for player1, for (b)
P1/P2-> NC C P1/P2-> NC C
w1(C,NC)= 9 & u1(C,NC)=3 NC (3,3) (0,4) NC (6,0) (0,2)

w1(NC,C)= ⴄ + Ө 0 = 3(3)= 9=9 is satisfied. C (4,0) (2,2) C (9,-4) (3,-2)

Similarly for player2 also it can be shown that (a) (b)

Payoff function w is linearly proportional to u.

So, (b) is equivalent to PD.
 Go, change the world

Dominated actions in Mixed Strategy

P1/P2 L R

T 1 1

M 4 0

B 0 3
(2
 Go, change the world

Weak Dominance in Mixed Strategy

Weak domination: In a strategic game with vNM preferences, for player
i, αi weakly dominates action ai if Ui(αi, a-i) ≥ Ui(a’i, a-i) for all action
profiles a-i ϵ A-I and Ui(αi, a-i) > Ui(a’i, a-i) for some action profile a-i.

NOTE: Strictly dominated action is not used with +ve probability in any
MSNE.
 Go, change the world

1. Find all MSNE by first eliminating any strictly dominated actions and
then constructing players best response functions. P1/P2-> L M R
T (2, 2) (0, 3) (1, 2)
Soln: Let α2=(1/4M+ 3⁄4R) B (3, 1) (1,0) (0, 2)

Then player2 gets 3⁄4+ 2 x 3⁄4 = 9/4, 2 x 3⁄4 = 3/2

ie., (2.25,1.5) > (2,1)
P1/P2-> L M
T (2, 2) (0, 3)
So, game table will be
B (3, 1) (1,0)

Now, using method to find MSNE, we get p= ⅔ and q=½.

((⅔,⅓),(½,½)) is MSNE.
 Go, change the world

Pure equilibria when randomization is

allowed
Let N be a set of players and Ai for each player i be a set of actions.
Consider the following two games:
G: the strategic game with ordinal preferences in which the set of
players is N, the set of actions of each player is Ai & the preferences of
each player I are represented by payoff function ui.
G’: the strategic game with vNM preferences in which the set of players
is N, the set of actions of each player is Ai & the preferences of each
player I are represented by expected payoff function ui.
 Go, change the world

Results:
1. Let a* be a NE of G and for each player i. Let αi* be the MS of player i.
that assigns probability 1 to the action ai *. Then α* is a MSNE of G’.
2. Let a* be a mixed strategy NE of G’ in which MS of player i assigns
probability 1 to the action ai* . Then α* is a NE of G.
 Go, change the world

1. Construct BoS game in which a player is indifferent between i)going

to her less preferred venue with other player ii) a lottery wherein
they go to different values with probability ½, she goes to her
favorite venue with other player with probability ½.
Soln: Let payoff to player if players go to different venues = 0
Let payoff to player if players go to same venues = 2 H/W B O

Let x be payoff to less preferred venue. B (2,x) (0,0)

x= ½ 0 + ½(2) = 1 O (0,0) (x,2)

H/W B O
Here game is standard BoS.
B (2,1) (0,0)

O (0,0) (1,2)
 Go, change the world

2. Construct a BoS game where in a player is indifferent ii) a lottery

where they go to different venue with probability ¾, she goes to her
favorite venue with other with probability ¼.
Soln: Let payoff to player if players go to different venues = 0
Let payoff to player if players go to same venues = 2
H/W B O
Let x be payoff to non preferred venue.
B (2,x) (0,0)
x= ¾ 0 + ¼ (2) = ½
O (0,0) (x,2)
Here game is not standard BoS. H/W B O

B (2, ½) (0,0)

O (0,0) (½,2)
 Go, change the world

Illustration: Expert Diagnosis

• https://drive.google.com/file/d/1UJzXMA_u_ei0IXN1iJApDMRtfxyJt6c
j/view?usp=sharing
 Go, change the world

The formation of players’ beliefs

Rationalisability & Beliefs

Rationalisable actions/strategies :
 Go, change the world

Rationalisable actions/strategies
An action ai for player i is rationalisable for that player, if that action can
be played by player i, given some beliefs of player i, regarding other
players action. So, if player i has some belief ui which justifies the play
of ai. 1/2 b 1 b b2 b 3 4

a1
In this game a4 and b4 are not rationalisable (0,7') (2,5) (7*,0) (0,1)

a2 (5,2) (3*,3') (5,2) (0,1)

actions. No matter what is the action taken by
a3 (7*,0) (2,5) (0,7') (0,1)
player1, b4 is never played.
a4 (0,0') (0,-2) (0,0') (10*,-1)
That is if P1 chooses a1, P2 chooses b1
if P1 chooses a2, P2 chooses b2
if P1 chooses a3, P2 chooses b3
if P1 chooses a4, P2 chooses b1 or b3
 Go, change the world

Also a4 is played when player2 plays b4. But b4 is not played. ∴ a4 is also
not rationalisable.
(b3,a3,b1,a1,b3…..)
Each action is being justified on a belief which is dependent on the
previous action in the sequence. Actions which are rationalisable is
related to the idea of best responses.
Defn: In a MS game the mixed strategies which survive the iterated
elimination of strategies which are never a best response are known as
rationalisable strategies/actions.
Ex: For PD game, (C,C) is a rationalisable strategy.
 Go, change the world

How a game converges to NE?

Beliefs are found and used to go to NE
1. Best response dynamics
2. Fictious play
Best response dynamics- Player starts with an arbitrary belief regarding
other player’s action. Then the other player observes what is his
opponent plays thinking that this action is going to be repeated in
future also.
That is Player believes that other’s action in the last period will be
repeated in the next period. And accordingly they play according to
their best responses.
Ex:
 Go, change the world
Suppose, p1 believes that p2 plays b1 and p2 believes that p1 plays a1
Player1 Player2
Belief: a1 b1
Action: B1(b1) B2(a1)
Action: B1(B2(a1)) B2(B1(b1))
……….. This repeats and converges to NE.
Ex 1: in PD it converges (Discrete payoffs) P1/P2-> NC C
Player1 Player2 NC (1,1) (0,3)
Belief: C NC C (3,0) (2,2)
Action: B1(NC)= C B2(C) =C
Action: B1(C)=C B2(C) =C
Action: B1(C)=C B2(C) =C
……….. This repeats and converges to NE (C,C).
Ex: In Cournot Duopoly game (Continuous payoff)
https://drive.google.com/file/d/19AlXvZxnfAnlPm3MwF48-O-uYyLusSyJ/view?usp=sharing
 Go, change the world

But in some games, arbitrary believes may not converges to NE

Ex: in BoS
Husband Wife H/W B O

Belief: B O B (2*,1’) (0,0)

O (0,0) (1*,2’)
Action: B1(O)= O B2(B) =B
Action: B1(B)=B B2(O)=O
Action: B1(O)=O B2(B)=B

Here (B,O) is repeated, which is not NE

So, it does not converge to NE.
 Go, change the world

Fictious play – Suppose for player1, rivals actions are as below (in last
10 play of the game)
Action: a1 a2 a3 a4
# of times: 5 4 1 0 Then in 11 th
game, P1 believe that
Probability: 5/10 4/10 1/10 0
Frequency will be proportional to probabilities attached.
 Go, change the world
Ex: Suppose in matching pennies game,
Player1’s belief - Player2 play T
Player2’s belief - Player1 play H
Round1- Player1 Player2
Belief: H T
Action: B1(T)= T B2(H)=T
Round2- B1(B2(H))=B1(T)=T B2(B1(T))=B2(T)=H
∴ player1 believes that player2 will play H with probability ½ and player2
believes that player1 will play definitely T.
Round3- p=0
E1(H, α2)= 1 ½+ (-1) ½=0 1-p=1
E1(T, α2)= (-1) ½+ (1) ½=0 ½ ½
 Go, change the world

So, player1 is indifferent between H and T. So he plays H or T.

E2(α1,H)= (-1) 0 + (1) 1=1
E2(α1,T)= (1) 0 + (-1) 1=-1
Since E2(α1,H) > E2(α1,T), player2 plays H.
∴ in round3, for player1 both H & T are best responses & for player2 H is
best response.
Round4- Player1 Player2
Belief: H or T H
Actions: B1(H)=H B2(H) or B2(T) = T or H
Round5: B1(T) or B1(H) = T or H B2(H)=T
∴ in round6, player1 best response probabilities to (H,T) would be either
(½, ½) or (1,0) and player2’s best response probabilities to (H,T) are
 Go, change the world

MS Equilibrium in a Single Population

Definition: A two player strategic game with vNM preferences is
symmetric if the player’s set of actions are the same and the player’s
preferences are represented by the expected values of payoff functions
u1 and u2 for which u1(a1,a2)=u2(a2,a1) for every action pair (a1,a2).
Symmetric MSNE: A profile α* of mixed strategies in a strategic game
with vNM preferences in a strategic game with vNM preferences in
which each player has the same set of actions is a symmetric MSNE if it
is a MSNE and αi* is the same for every player i.
Ex: Approaching Pedestrians
Here two pedestrians actions are to step right or step left. It is better
 Go, change the world

for both of them, when they step in same direction than when they step in
different directions. P1/P2 L R

Here game has symmetric MSNE in which each player L (1, 1) (0, 0)
assigns probability ½ to L & ½  to R. This equilibrium
corresponds to a steady state in which ½ of all encounters R (0, 0) (1, 1)
results in collisions.
 Go, change the world

Representing preferences by expected payoff

Von Neumann Morgenstern preferences(vNM preferences): It deals
with uncertain situations. Suppose 3 outcomes x, y, z can occur with
probabilities p1,p2,p3 with p1+p2+p3=1. For a player if she get the
following pay off from above lottery, u1(x, y, z : p1, p2, p3 ) = p1 u1(x)+ p2
u1(y)+ p3 u1(z) then the preference is called Von Neumann Morgenstern
preferences.
Von Neumann Morgenstern imposed an assumption- “the
independence axiom” – that allows to represent players preferences by
an expected payoff function.
 Go, change the world

Suppose u is a payoff function over deterministic outcomes such that

the decision maker’s preference relation over lotteries is represented
by function U(p1,p2,…..pk)= , where ak is kth outcome of the lottery:
>
Iff if the player prefers the lottery (p1,p2,…..pk) to the lottery (p’1,p’2,
…..p’k). That is the player evaluates a lottery by its expected payoff
according to the function u, which is known as player’s Bernoulli payoff
function.
 Go, change the world

Ex: There are 3 possible deterministic outcomes: the decision maker

may receive $0, $1 or $5 and naturally he prefers $5 to $1 to $0.
Suppose the player prefers the lottery (½, 0, ½) to the lottery
(0, ¾, ¼)(where the first number in each list is the probability of
$0,second is of $1 and last is of $5).
This preference is consistent with preferences represented by the
expected value of a payoff function u for which u(0)=0, u(1)=1 and
u(5)=4 because,
½ 0+ ½ 4 > ¾ 1 + ¼ 4
That is 2 > 1.75.
Many other payoff functions are consistent with a preference for
(½, 0, ½) to the lottery (0, ¾, ¼).
 Go, change the world

Suppose the player prefers the lottery (0, ¾, ¼) to the lottery (½,0, ½)
Then payoff function u for which u(0)=0, u(1)=3, u(5)=4 is consistent
because
¾ 3 + ¼ 4 > ½ 0+ ½ 4
That is 13/4 = 3.25 >2.