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Pure and Mixed Strategies: Source: Varian, Intermediate Microeconomics: A Modern Approach, 8 Edition, 2010, Norton

The document discusses pure and mixed strategy Nash equilibria in game theory. It presents a 2x2 game with no pure strategy Nash equilibria but one mixed strategy equilibrium. The equilibrium involves each player using a mixed strategy of probabilities over their pure strategies to make the other player indifferent between their own strategies. Player A mixes with probability 3/5 of their first strategy and 2/5 of their second strategy, while Player B mixes with probability 3/4 of their first strategy and 1/4 of their second strategy. Expected payoffs for each player are then calculated based on these mixed strategies.

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76 views46 pages

Pure and Mixed Strategies: Source: Varian, Intermediate Microeconomics: A Modern Approach, 8 Edition, 2010, Norton

The document discusses pure and mixed strategy Nash equilibria in game theory. It presents a 2x2 game with no pure strategy Nash equilibria but one mixed strategy equilibrium. The equilibrium involves each player using a mixed strategy of probabilities over their pure strategies to make the other player indifferent between their own strategies. Player A mixes with probability 3/5 of their first strategy and 2/5 of their second strategy, while Player B mixes with probability 3/4 of their first strategy and 1/4 of their second strategy. Expected payoffs for each player are then calculated based on these mixed strategies.

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Prima Donmuang
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd

Pure and Mixed Strategies

Source: Varian, Intermediate Microeconomics: A Modern Approach, 8th


Edition, 2010, Norton.
Pure Strategies

Player B
L R
U (1,2) (0,4)
Player A
D (0,5) (3,2)

Here is a new game. Are there any pure strategy


Nash equilibria?
Pure Strategies

Player B
L R
U (1,2) (0,4)
Player A
D (0,5) (3,2)

Is (U,L) a Nash equilibrium?


Is (U,R) a Nash equilibrium?
Is (D,L) a Nash equilibrium?
Is (D,R) a Nash equilibrium?
Pure Strategies

Player B
L R
U (1,2) (0,4)
Player A
D (0,5) (3,2)

So the game has no Nash equilibria in pure strategies.


Even so, the game does have a Nash equilibrium, but
in mixed strategies.
Mixed Strategies

◼ Instead of playing purely Up or Down, Player A


selects a probability distribution (pU,1-pU),
meaning that with probability pU Player A will play
Up and with probability 1-pU will play Down.
◼ Player A is mixing over the pure strategies Up
and Down.
◼ The probability distribution (pU,1-pU) is a
mixed strategy for Player A.
Mixed Strategies

◼ Similarly, Player B selects a probability distribution


(pL,1-pL), meaning that with probability pL Player
B will play Left and with probability 1-pL will play
Right.
◼ Player B is mixing over the pure strategies Left
and Right.
◼ The probability distribution (pL,1-pL) is a
mixed strategy for Player B.
Mixed Strategies

Player B
L R
U (1,2) (0,4)
Player A
D (0,5) (3,2)

This game has no Nash equilibrium in pure strategies,


but it does have a Nash equilibrium in mixed
strategies. How is it computed?
Mixed Strategies

Player B
L, pL R, 1-pL
U, pU (1,2) (0,4)
Player A
D, 1-pU (0,5) (3,2)
Mixed Strategies

Player B
L, pL R, 1-pL
U, pU (1,2) (0,4)
Player A
D, 1-pU (0,5) (3,2)
A’s expected value of choosing Up is_______.
A’s expected value of choosing Down is ________.
If ____________then A will choose only ________,
but there is no NE in which A plays only Up.
Mixed Strategies

Player B
L, pL R, 1-pL
U, pU (1,2) (0,4)
Player A
D, 1-pU (0,5) (3,2)

If ______________ then A will choose only ______,


but there is no NE in which A plays only Down.
Mixed Strategies

Player B
L, pL R, 1-pL
U, pU (1,2) (0,4)
Player A
D, 1-pU (0,5) (3,2)
If there is a NE necessarily pL = 3(1 - pL)  pL = 3/4;
i.e. the way B mixes over Left and Right must make A
indifferent between choosing Up or Down.
Mixed Strategies

Player B
L, 3/4 R, 1/4
U, pU (1,2) (0,4)
Player A
D, 1-pU (0,5) (3,2)
If there is a NE necessarily pL = 3(1 - pL)  pL = 3/4;
i.e. the way B mixes over Left and Right must make A
indifferent between choosing Up or Down.
Mixed Strategies

Player B
L, 3/4 R, 1/4
U, pU (1,2) (0,4)
Player A
D, 1-pU (0,5) (3,2)
Mixed Strategies

Player B
L, 3/4 R, 1/4
U, pU (1,2) (0,4)
Player A
D, 1-pU (0,5) (3,2)
B’s expected value of choosing Left is 2pU + 5(1 - pU).
B’s expected value of choosing Right is 4pU + 2(1 - pU).
If 2pU + 5(1 - pU) > 4pU + 2(1 - pU) then B will choose
only____, but there is no NE in which B plays only Left.
Mixed Strategies

Player B
L, 3/4 R, 1/4
U, pU (1,2) (0,4)
Player A
D, 1-pU (0,5) (3,2)

If 2pU + 5(1 - pU) < 4pU + 2(1 - pU) then B plays only
______ , but there is no NE where B plays only Right.
Mixed Strategies

Player B
L, 3/4 R, 1/4
U, 3/5 (1,2) (0,4)
Player A
D, 2/5 (0,5) (3,2)
If there is a NE then necessarily
2pU + 5(1 - pU) = 4pU + 2(1 - pU)  pU = 3/5;
i.e. the way A mixes over Up and Down must make B
indifferent between choosing Left or Right.
Mixed Strategies

Player B
L, 3/4 R, 1/4
U, 3/5 (1,2) (0,4)
Player A
D, 2/5 (0,5) (3,2)
The game’s only Nash equilibrium consists of A
playing the mixed strategy (3/5, 2/5) and B playing
the mixed strategy (3/4, 1/4).
Mixed Strategies

Player B
L, 3/4 R, 1/4
U, 3/5 (1,2) (0,4)
9/20
Player A
D, 2/5 (0,5) (3,2)
The payoff will be (1,2) with probability
3/5 × 3/4 = 9/20.
Mixed Strategies

Player B
L, 3/4 R, 1/4
U, 3/5 (1,2) (0,4)
9/20 3/20
Player A
D, 2/5 (0,5) (3,2)
The payoff will be (0,4) with probability
3/5 × 1/4 = 3/20.
Mixed Strategies

Player B
L, 3/4 R, 1/4
U, 3/5 (1,2) (0,4)
9/20 3/20
Player A
D, 2/5 (0,5)
(3,2)
6/20
The payoff will be (0,5) with probability
2/5 × 3/4 = 6/20.
Mixed Strategies

Player B
L, 3/4 R, 1/4
U, 3/5 (1,2) (0,4)
9/20 3/20
Player A
D, 2/5 (0,5) (3,2)
6/20 2/20
The payoff will be (3,2) with probability
2/5 × 1/4 = 2/20.
Mixed Strategies

Player B
L, 3/4 R, 1/4
U, 3/5 (1,2) (0,4)
9/20 3/20
Player A
D, 2/5 (0,5) (3,2)
6/20 2/20
A’s NE expected payoff is
1×9/20 + 3×2/20 = 3/4.
Mixed Strategies

Player B
L, 3/4 R, 1/4
U, 3/5 (1,2) (0,4)
9/20 3/20
Player A
D, 2/5 (0,5) (3,2)
6/20 2/20
A’s NE expected payoff is
1×9/20 + 3×2/20 = 3/4.
B’s NE expected payoff is
2×9/20 + 4×3/20 + 5×6/20 + 2×2/20 = 16/5.
Mixed Strategies with
Visualization
Best Responses & Nash
Equilibria
Player B Here is a new
aB1 aB2 2×2 game.

aA1 6,4 3,1


Player A
aA2 4,3 5,7
Best Responses & Nash
Equilibria
Player B Here is a new
aB1 aB2 2×2 game. Again
let pA1 be the prob.
that A chooses aA1
aA1 6,4 3,1 and let pB1 be the
Player A prob. that B chooses
aB1. What are the NE
aA2 4,3 5,7 of this game?

Notice that Player B no longer has a strictly dominant action.


Best Responses & Nash
Equilibria
Player B pA1 is the prob. that A
aB1 aB2 chooses aA1.
pB1 is the prob. that B
chooses aB1.
aA1 6,4 3,1
Player A
aA2 4,3 5,7

EVA(aA1) = ??
EVA(aA2) = ??
Best Responses & Nash
Equilibria
Player B pA1 is the prob. that A
aB1 aB2 chooses aA1.
pB1 is the prob. that B
chooses aB1.
aA1 6,4 3,1
Player A
aA2 4,3 5,7

EVA(aA1) = 6pB1 + 3(1 - pB1) = 3 + 3pB1.


EVA(aA2) = ??
Best Responses & Nash
Equilibria
Player B pA1 is the prob. that A
aB1 aB2 chooses aA1.
pB1 is the prob. that B
chooses aB1.
aA1 6,4 3,1
Player A
aA2 4,3 5,7

EVA(aA1) = 6pB1 + 3(1 - pB1) = 3 + 3pB1.


EVA(aA2) = 4pB1 + 5(1 - pB1) = 5 - pB1.
Best Responses & Nash
Equilibria
Player B pA1 is the prob. that A
aB1 aB2 chooses aA1.
pB1 is the prob. that B
chooses aB1.
aA1 6,4 3,1
Player A
aA2 4,3 5,7

EVA(aA1) = 6pB1 + 3(1 - pB1) = 3 + 3pB1.


EVA(aA2) = 4pB1 + 5(1 - pB1) = 5 - pB1.
3 + 3pB1 >
= 5 - pB as pB > ½.
1 =
< 1
<
Best Responses & Nash
Equilibria
EVA(aA1) = 6pB1 + 3(1 - pB1) = 3 + 3pB1.
EVA(aA2) = 4pB1 + 5(1 - pB1) = 5 - pB1.
3 + 3pB1 >
= 5 - pB as pB > ½.
1 =
< 1
<
A’s best response
pA1
1

0
0 ½ 1 pB1
Best Responses & Nash
Equilibria
EVA(aA1) = 6pB1 + 3(1 - pB1) = 3 + 3pB1.
EVA(aA2) = 4pB1 + 5(1 - pB1) = 5 - pB1.
3 + 3pB1 >
= 5 - pB as pB > ½.
1 =
< 1
<
A’s best response
pA1
1

0
0 ½ 1 pB1
Best Responses & Nash
Equilibria
Player B pA1 is the prob. that A
aB1 aB2 chooses aA1.
pB1 is the prob. that B
chooses aB1.
aA1 6,4 3,1
Player A
aA2 4,3 5,7

EVB(aB1) = ??
EVB(aB2) = ??
Best Responses & Nash
Equilibria
Player B pA1 is the prob. that A
aB1 aB2 chooses aA1.
pB1 is the prob. that B
chooses aB1.
aA1 6,4 3,1
Player A
aA2 4,3 5,7

EVB(aB1) = 4pA1 + 3(1 - pA1) = 3 + pA1.


EVB(aB2) = ??
Best Responses & Nash
Equilibria
Player B pA1 is the prob. that A
aB1 aB2 chooses aA1.
pB1 is the prob. that B
chooses aB1.
aA1 6,4 3,1
Player A
aA2 4,3 5,7

EVB(aB1) = 4pA1 + 3(1 - pA1) = 4 + pA1.


EVB(aB2) = pA1 + 7(1 - pA1) = 7 - 6pA1.
Best Responses & Nash
Equilibria
Player B pA1 is the prob. that A
aB1 aB2 chooses aA1.
pB1 is the prob. that B
chooses aB1.
aA1 6,4 3,1
Player A
aA2 4,3 5,7

EVB(aB1) = 4pA1 + 3(1 - pA1) = 3 + pA1.


EVB(aB2) = pA1 + 7(1 - pA1) = 7 - 6pA1.
3 + pA1 >
= 7 - 6pA as pA > 4/ .
1 = 7
< 1
<
Best Responses & Nash
Equilibria
EVB(aB1) = 4pA1 + 3(1 - pA1) = 3 + pA1.
EVB(aB2) = pA1 + 7(1 - pA1) = 7 - 6pA1.
3 + pA1 >
= 7 - 6pA as pA > 4/ .
1 = 7
< 1
<
pA1
1

4/
7

0
0 1 pB1
B’s best response
Best Responses & Nash
Equilibria
EVB(aB1) = 4pA1 + 3(1 - pA1) = 3 + pA1.
EVB(aB2) = pA1 + 7(1 - pA1) = 7 - 6pA1.
3 + pA1 >
= 7 - 6pA as pA > 4/ .
1 = 7
< 1
<
pA1
1

4/
7

0
0 1 pB1
B’s best response
Best Responses & Nash
Equilibria

B A
A’s best response
pA1 pA1
1 1

4/
7

0 0
0 1 pB1 0 ½ 1 pB1
B’s best response
Best Responses & Nash
Equilibria
Is there a Nash equilibrium?

B A
A’s best response
pA1 pA1
1 1

4/
7

0 0
0 1 pB1 0 ½ 1 pB1
B’s best response
Best Responses & Nash
Equilibria
Is there a Nash equilibrium?

B A
A’s best response
pA1 pA1
1 1

4/
7

0 0
0 1 pB1 0 ½ 1 pB1
B’s best response
Best Responses & Nash
Equilibria
Is there a Nash equilibrium?

A’s best response


pA1
1

4/
7

0
0 ½ 1 pB1
B’s best response
Best Responses & Nash
Equilibria
Is there a Nash equilibrium? Yes. 3 of them.

A’s best response


pA1
1

4/
7

0
0 ½ 1 pB1
B’s best response
Best Responses & Nash
Equilibria
Is there a Nash equilibrium? Yes. 3 of them.
(pA1, pB1) = (0,0)

A’s best response


pA1
1

4/
7

0
0 ½ 1 pB1
B’s best response
Best Responses & Nash
Equilibria
Is there a Nash equilibrium? Yes. 3 of them.
(pA1, pB1) = (0,0)
(pA1, pB1) = (1,1)
A’s best response
pA1
1

4/
7

0
0 ½ 1 pB1
B’s best response
Best Responses & Nash
Equilibria
Is there a Nash equilibrium? Yes. 3 of them.
(pA1, pB1) = (0,0)
(pA1, pB1) = (1,1)
A’s best response
(pA1, pB1) = (4/7 ,½ )
pA1
1

4/
7

0
0 ½ 1 pB1
B’s best response

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