GAME THEORY 2016-2017– EXERCISES

1. HEAD-TAILS Two players choose between tail and head. If both show
“head” the first player gets 60 cents and the second gets 40 cents. If both
show “tail” the first player gets 40 cents and the second gets 60 cents. If
they do not coordinate none gets anything. Formulate the situation as a
strategic game and determine the Nash equilibrium/equilibria.

2. DIVIDE ONE EURO. Two players make claims to divide one euro: the
claim can be low (30 cents), medium (50 cents) or high (70 cents). If the
sum of their claims is feasible (smaller or equal to 1 euro) they walk away
with their respective claim. Otherwise they walk away with nothing.
Formulate the situation as a strategic game and determine the Nash
equilibrium/equilibria in pure strategies.

3. ROCK-PAPER-SCISSORS: Formulate the following situation as a

strategic game and determine the Nash equilibrium/equilibria in pure
strategies. Two kids simultaneously choose between “rock”, “scissors” or
“paper”. The winner is determined as follows: “rock crushes scissors”,
"paper covers rock and "scissors cut paper". If both choose the same
instrument, there is a tie. The winner receives 1 euro from the loser.

4. STAG HUNT (Osborne, 2004): Each of the two hunters has two options:
she may remain attentive to the pursuit of a stag, or she may catch a
hare. If both hunters pursue the stag, they catch it and share it equally; if
one hunter devotes her energy to catching a hare, the stag escapes, and
the hare belongs to the defecting hunter alone. Both hunters prefer a
share of the stag to a hare.

5. HERMAPHRODITIC FISH (Osborne, 2004): Members of some species

of hermaphroditic fish choose, in each mating encounter, whether to play
the role of a male or a female. Each fish has a preferred role, which uses
up fewer resources and hence allows more future mating. A fish obtains a
payoff of H if it mates in its preferred role and L if it mates in the other
role, where H>L. Consider an encounter between two fish whose
preferred roles are the same. Each fish has two possible actions: mate in
either role or insist on its preferred role. If both fishes offer to mate in
either role, the roles are assigned randomly, and each fish’s payoff is
½(H+L). If each fish insists on its preferred role, the fish do not mate,
each goes off in search of another partner, and obtains a payoff of S. The
higher the change of meeting another partner, the higher is S. Formulate
this situation as a strategic game and determine the range of values of S,
for any given value of H and L, for which the game differs from the
Prisoner’s Dilemma only in the name of the actions.
6. DOMINANCE IN NORMAL FORM GAMES. In the following games
a. Determine the strategies that are strictly dominated
b. Eliminate sequentially the strictly dominated strategies. Does there
exist an equilibrium in dominant strategy?
c. Determine the Nash equilibrium in pure strategies.

L C R
T 1,1 0,0 -1,0
M 0,0 0,6 10,-1
B 2,0 10,-1 -1,-1

L C R
T 2,0 1,1 4,2
M 3,4 1,2 2,3
B 1,3 0,2 3,0

7. NASH EQUILIBRIA IN NORMAL FORM GAMES.

In the following games, determine the Nash equilibrium or equilibria

L R L R
T 2,2 0,3 T 4,4 2,0
B 3,0 1,1 B 4,3 2,5

L R L R
T 2,1 0,1 T 0,2 2,1
B 0,0 1,2 B 0,-1 1,-2

8. EQUILIBRIUM IN DOMINANT STRATEGIES

Given the following game determine for which values of a,b,c the pair
(B,L) is an equilibrium in dominant strategies:

L R
T 4,4 0,2
M 2,1 1,0
B a,b c,1

9. AUMANN EXAMPLE Consider the following game in normal form:

L R
T 9,9 0,8
B 8,0 7,7
a. Can the game be solved by elimination of strictly dominated
strategies?
b. Determine the Nash equilibrium/equilibria (in pure and mixed
strategies
10. ODD-EVEN GAME Consider the following game between Ann and
Bernard. Both privately write an odd or even number on a paper. If the
two numbers are even, Ann gives one euro to Bernard, if the two numbers
are odd Ann gives two euros to Bernard. Otherwise Bernard gives 1,5
euros to Ann.
a. Represent the game in normal form
b. What are the equilibria of the game?

11. SEQUENTIAL GAMES: represent the following games if they were

played sequentially. Find the equilibrium obtained by backward induction
a. Prisoner’s Dilemma
b. Matching pennies
c. Rock-paper-scissors

12. TAXONOMY OF 2X2 GAMES. Discuss the class of games (and the
number of equilibrium) according to the parameter alpha

S T
S 7,5 3,4
T 2,3 alpha,6

13. EQUILIBRIA BY BACKWARD INDUCTION

For each of the following game:
a. Determine the equilibrium by backward induction (whenever it is
posible)
b. Represent the game in norm form
c. What are the Nash equilibria in pure strategies?
d. Which equilibria are subgame perfect equilibrium?
14. CHOOSING BY VETO Ann and Bernard have to choose a common
activity for the following day: They may (1) have lunch together, (2), bike
or (3) go to the movies. Ann’s preferred option is lunch, the second best is
biking, and going to the movies is the worst option. Bernard prefers to
bike. His second best is the lunch and the worst is the movies. They
decide by veto, that is each person may eliminate one activity. Ann
eliminates first an activity, and then Bernard eliminates another activity.
The chosen activity is the one that has not been vetoed.
a. Represent the game in extensive form
b. If both players know each others’ preferences, what is the
equilibrium obtained by backward induction? What option does
Ann veto? What option does Bernard veto? What will they do?

15. GERMAN REUNIFICATION Three options were considered at the

German reunification: (1) to keep Bonn as the capital (2) to move the
capital to Berlin (3) to move the Parliament to Berlin and to keep Bonn as
administrative capital. The Government was in favor of keeping Bonn as
the capital, and its second best was to move the capital to Berlin and
keep Bonn as administrative capital. By contrast the Parliament’s
preferred option was to move the Parliament to Berlin and keep Bonn as
administrative capital and its second best was to move the capital to
Berlin. Consider the following hypothetical decision mechanism: The
Government decides whether a single capital has to be chosen (the
 alternative option the Parliament being moved to Berlin and keeping Bonn
as administrative capital). If it decides that a single capital has to be
chosen, the Parliament chooses between Berlin and Bonn
a. Represent the situation as a game in extensive form
b. What is the equilibrium by backward induction? What is the
chosen option?
c. Is there other Nash equilibrium(s)?

16. TREASURE GAME: Three persons have discovered a treasure of worth

900. If all cooperate they will be able to get its full value, if only two people
cooperate they will get 500. On their own they cannot get anything. The
situation can be summarized by the following cooperative game:

v(1)=0 v(1,2)=500 v(1,2,3)=900

v(2)=0 v(1,3)=500

v(3)=0 v(2,3)=500

a. What is the core of the game?

b. What is the Shapley value?

17. SHARING TRAVEL COSTS: Three colleagues working in Liege consider

the idea of sharing a car to go to work. Ann lives in Boncelles, Bernard in
Tilff and Claudia in Embourg.

a. Represent the game if the cost of a coalition is equal to the

mínimum number of kilometers necessary to go to Liege.
b. What is the core of the game?Representation?
c. What is the Shapley value?
18. COST SHARING FOR A SOURCE Three cities want to get connected to
a source. They can either get directly connected or indirectly connected
(via another city). The costs of the links between the source and each city
or the links between any pair of cities are given in the following table:
LINK COST
City 1 - Source 18
City 2 - Source 21
City 3 - Source 27
City 1 – City 2 15
City 1 – City 3 12
City 2 – City 3 24
a. If the cost of a coalition is the (minimum) cost of getting the cities
of the coalition connected to the source, represent the coalitional
form of the game.
b. What are the conditions that define the core of the game?

19. CAR SELLERS: A car seller employs three salesmen, Andrew, Robert
and John, and wants to give a promotion according to what they
respectively sell. When Andrew, Robert and John are alone in the
showroom, each one manages to sell respectively 10, 5 and 5 cars on
average per day. When John and Robert are both present, they sell 15
car per day, while the team John-Andrew gets 30, and the team Robert-
Andrew 20. Knowing that 40 cars are sold when everybody is in the
showroom
a. Represent the cooperative game
b. What is the core of this game?
c. Give an example of an allocation which belongs to the core
d. Andrew proposes to consider that he is responsible for the sale of
30 cars, and that Robert and John sell each 5 cars. Is this
allocation individually rational? Collectively rational? Is it in the
core?

20. PAIR OF SHOES GAME: Ann and Bernard have one right shoe each,
Claudia has one left shoe, and Daniel has two left shoes. The value of a
coalition is the number of pairs of shoes that the coalition can form.
a. What is the characteristic function of the game?
b. What is the core?