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Mixed Strategy
aTwo kind of strategies:
`pure `mixed
+1, -1
-1, +1
+1, -1
-1, +1
Tails
-1, +1
+1, -1
Tails
-1, +1
+1, -1
1- x
-1, +1
+1, -1
-1, +1
+1, -1
1 - 2y
1- x
-1, +1
+1, -1
Similarly, Player 2 is willing to randomize only when she is indifferent between h and t
Player 1s Conditions: EU1(H) = EU1(T) Player 2s Conditions: EU2(h) = x -1 + (1- x) 1 = 1 - 2x EU2(t) = x 1 + (1- x) -1 = 2x - 1
1 - 2x = 2x - 1 x= and 1 - x = 1 - =
10
y=1-y=
x=1-x=
-50, -50
100, 0
-50, -50
100, 0
Stay Out
0, 100
0, 0
Stay Out
0, 100
0, 0
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s 100, 0 E
1- x
0, 100
0, 0
0, 100
0, 0
S EU2:
0, 100 100-150x
0, 0 0
2/3
e -50, -50
1/3
s 100, 0 EU1: 0 ||
2/3 1/3
0, 100
0, 0
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Says ace
0, 0
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0, 0
0.5, -0.5
0, 0
0.5, -0.5
Say K when K
0.5, -0.5
0.25, -0.25
Say K when K
0.5, -0.5
0.25, -0.25
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Each player calculates his expected utility from others mixed strategy
probability 1 probability x 2 y c 0, 0 1- y f 0.5, -0.5 EU1: 0.5 - 0.5y
A when K
1- x K when K
0.5, -0.5
0.25, -0.25
Similarly, Player 2 is willing to randomize only when she is indifferent between c and f
Player 1s Conditions: EU1(A) = EU1(K) Player 2s Conditions: EU2(c) = x 0 + (1- x) -0.5 = 0.5x - 0.5 EU2(f) = x -0.5 + (1- x) -0.25 = -0.25x - 0.25
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Mixed Strategy Equilibria of Coordination Games and Coordination Problems aGames with mixed strategy equilibria which cannot be detected by the arrow diagram aThe mixed strategy equilibrium of Video System Coordination is not efficient
1/3
c 0, 0
2/3
f 0.5, -0.5 EU1: 1/3 ||
1/3
2/3
0.5, -0.5
0.25, -0.25
1/3
EU2: -1/3 = -1/3 Each player is playing a best response to the other!
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Correlated Equilibrium
aMixed strategy Nash equilibria tend to have low efficiency aCorrelated equilibria
`public signal `Nash equilibrium in game that follows
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-50, -50
150, 0
-50, -50
150, 0
Stay Out
0, 100
0, 0
Stay Out
0, 100
0, 0
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Need to calculate each firms expected utility from the firms mixed strategy
probability 1 probability x 2 e -50, -50 y 1- y s 150, 0 EU1: 150 - 200y
1- x
0, 100
0, 0
1- x
S EU2:
0, 0 0
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3/4
e -50, -50
1/4
s 150, 0 EU1: 0 ||
2/3 1/3
0, 100
0, 0
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Chicken
aTwo drivers race toward a cliff aStrategy choice:
`swerve `straight ahead
-10, -10
1, -1
swerve
-1, 1
0, 0
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-10, -10
1, -1
-10, -10
1, -1
swerve
-1, 1
0, 0
swerve
-1, 1
0, 0
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-10, -10
1, -1
1- x swerve -1, 1 0, 0
swerve
-1, 1
0, 0
x, y between 0 and 1
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In equilibrium, player 1 is willing to randomize only when she is indifferent between swerve and straight
1- x
swerve
-1, 1
0, 0
-y
EU2
1 11x
-x
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Similarly, player 2 is willing to randomize only when he is indifferent between swerve and straight
Player 1s Conditions: EU1(swerve) = EU1(straight) Player 2s Conditions: EU2(straight) = x (-10) + (1-x) 1 = 1 11x EU2(swerve) = x (-1) + (1- x) 0 = -x
EU2
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-0.1
-0.1
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NP
SP
8500, 7500
5500, 5500
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NP
7500, 8500
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Each retailer calculates its expected utility from others mixed strategy
probability 1 probability x 2 y np 1- y sp EU1 7500
1- x
SP 8500, 7500 5500, 5500 3000y + 5500 EU2: 7500 3000x + 5500
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2/3
1 probability 2 np
1/3
sp EU1: 7500 ||
2/3 1/3
7500
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EU2: 7500 = 7500 Each player is playing a best response to the other!
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Row randomizes to make Column indifferent. Column randomizes to make Row indifferent. Then each is playing a best response to the other.
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II: Bet AK
1/9, -1/9
0, 0
2/9, -2/9
III: Bet AQ
III: Bet AQ
-3/9, 3/9
-2/9, 2/9
0, 0
IV: Bet A
IV: Bet A
-2/9, 2/9
-1/9, 1/9
-1/9, 1/9
0, 0
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II: Bet AK
3/9, -3/9
0, 0
3/9, -3/9
0, 0
III: Bet AQ
-3/9, 3/9 0, 0
-3/9, 3/9
0, 0 0, 0
0, 0
IV: Bet A
0, 0
0, 0
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