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GT - Exercise Set

This document provides examples and exercises on Nash equilibrium in games. It presents two examples of 2-player strategic games - one where the players have coordinating preferences and two Nash equilibria exist, and one where the players have opposing preferences and no Nash equilibrium exists. It also works through an exercise game and finds the two Nash equilibria. The key steps shown are setting up the game matrices, examining each action profile to determine if either player could increase their payoff by changing actions, and concluding whether each profile is or is not a Nash equilibrium.

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Oanh Tôn Nữ Thục
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59 views5 pages

GT - Exercise Set

This document provides examples and exercises on Nash equilibrium in games. It presents two examples of 2-player strategic games - one where the players have coordinating preferences and two Nash equilibria exist, and one where the players have opposing preferences and no Nash equilibrium exists. It also works through an exercise game and finds the two Nash equilibria. The key steps shown are setting up the game matrices, examining each action profile to determine if either player could increase their payoff by changing actions, and concluding whether each profile is or is not a Nash equilibrium.

Uploaded by

Oanh Tôn Nữ Thục
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PDF, TXT or read online on Scribd
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Examples and exercises on Nash equilibrium in games in which each

player has finitely many actions

Procedure
Check each action pair to see if it has the property that each player's action maximizes
her payoff given the other players' actions.

Example: coordination between players with different preferences


Two firms are merging into two divisions of a large firm, and have to choose the
computer system to use. In the past the firms have used different systems, I and A;
each prefers the system it has used in the past. They will both be better off if they use
the same system then if they continue to use different systems.

We can model this situation by the following two-player strategic game.

Player 2

I A

Player 1 I
2,1 0,0
A
0,0 1,2

To find the Nash equilibria, we examine each action profile in turn.

(I,I)
Neither player can increase her payoff by choosing an action different from her
current one. Thus this action profile is a Nash equilibrium.
(I,A)
By choosing A rather than I, player 1 obtains a payoff of 1 rather than 0, given player
2's action. Thus this action profile is not a Nash equilibrium. [Also, player 2 can
increase her payoff by choosing I rather than A.]
(A,I)
By choosing I rather than A, player 1 obtains a payoff of 2 rather than 0, given player
2's action. Thus this action profile is not a Nash equilibrium. [Also, player 2 can
increase her payoff by choosing A rather than I.]
(A,A)
Neither player can increase her payoff by choosing an action different from her
current one. Thus this action profile is a Nash equilibrium.
We conclude that the game has two Nash equilibria, (I,I) and (A,A).

Example: players with opposing preferences


An established firm and a newcomer to the market of fixed size have to choose the
appearance for a product. Each firm can choose between two different appearances for
the product; call them X and Y. The established producer prefers the newcomer's
product to look different from its own (so that its customers will not be tempted to buy
the newcomer's product) while the newcomer prefers that the products look alike.

We can model this situation by the following two-player strategic game.

Player 2

X Y

Player 1 X
2,1 1,2
Y
1,2 2,1

To find the Nash equilibria, we examine each action profile in turn.

(X,X)
Firm 2 can increase its payoff from 1 to 2 by choosing the action Y rather than the
action X. Thus this action profile is not a Nash equilibrium.
(X,Y)
Firm 1 can increase its payoff from 1 to 2 by choosing the action Y rather than the
action X. Thus this action profile is not a Nash equilibrium.
(Y,X)
Firm 1 can increase its payoff from 1 to 2 by choosing the action X rather than the
action Y. Thus this action profile is not a Nash equilibrium.
(Y,Y)
Firm 2 can increase its payoff from 1 to 2 by choosing the action X rather than the
action Y. Thus this action profile is not a Nash equilibrium.
We conclude that the game has no Nash equilibrium!
Exercise
Find the Nash equilibria of the following strategic game.
Player 2

L R

Player 1 T
2,2 0,0
B
0,0 1,1

SOLUTION:
(T,L)
Neither player can increase its payoff by choosing a different action, so this action
profile is a Nash equilibrium.
(T,R)
Player 1 can increase her payoff from 0 to 1 by choosing the action B rather than the
action T. Thus this action profile is not a Nash equilibrium.
(B,L)
Firm 1 can increase its payoff from 0 to 2 by choosing the action T rather than the
action B. Thus this action profile is not a Nash equilibrium.
(B,R)
Neither firm can increase its payoff by choosing a different action, so this action
profile is a Nash equilibrium.

We conclude that the game has two Nash equilibria, (T,L) and (B,R).

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