Andrew McLennan January 25, 2005

Economics 8103
Microeconomic Theory
Spring 2005

Lecture 4
Kakutani’s Fixed Point Theorem:
A New Proof
I. Introduction

A. Kakutani’s fixed point theorem is the most important mathematical result

underlying economic theory.

1. It is the “engine” of the existence proofs for Nash equilibrium and the

existence of competitive equilibrium in general equilibrium theory.

2. An understanding of fixed point theory contributes to the analysis of

at least two issues that are important in both of these branches of

mathematical economics.

a. “Learning” or otherwise converging to an equilibrium.

b. Stability of equilibria.
B. Proofs of Kakutani’s theorem are typically not studied except in advanced

courses in mathematical economics.

1. Speaking personally, I find this morally offensive.

a. Any mathematician would think it ridiculous to “train” new

researchers without teaching the proofs of the key results in

their fields.
2. Of course the reason for this neglect is that (until now!) all proofs of

Kakutani’s fixed point theorem suffered from two defects.

a. They are long and technical.

1
 b. They require the development of mathematical concepts of lim-

ited interest in economics.

C. We will study a new proof recent discovered by Rabee Tourky (of the Uni-
versity of Melbourne) and myself.

1. In comparison with other proofs, it is brief and simple.

2. Turning the tables, game theory is applied to topology: the basis of the

argument is a special case of the Nash equilibrium existence theorem

that is easy to prove, but which implies the general Kakutani theorem

by a simple argument.

II. Imitation Games

A. A finite two person normal form game is specified by a pair (M, N ) of m × n

payoff matrices.
Pk
1. For k = 1, 2, . . . let ∆k := { σ ∈ IR≥
k
: i=1 σi = 1 } be the (k − 1)-

dimensional simplex.
2. A pair (ι, ρ) ∈ ∆m × ∆n is a Nash equilibrium of (M, N ) if ιT M ρ ≥

ι̃T M ρ for all ι̃ ∈ ∆m and ιT N ρ ≥ ιT N ρ̃ for all ρ̃ ∈ ∆n .

3. We say that the game is an imitation game if n = m and N is the

m × m identity matrix. That is, the second player’s objective is to

play “the same” pure strategy as the first player.

4. In connection with an imitation game, we call the first player the

mover and the second player the imitator .

B. There are two main steps:

1. Prove that every imitation game has a Nash equilibrium.

2. Use this to prove Kakutani’s theorem.

2
 III. The Proof of Kakutani’s Theorem

A. We reverse the logical order of the two steps. Assume that it is already

known that every imitation game has a Nash equilibrium.

B. Our goal is:

Kakutani’s Fixed Point Theorem: If C ⊂ IRn is nonempty, compact, and convex, and

F : C → C is a correspondence whose values F (x) are convex and whose graph

{ (x, y) : x ∈ C, y ∈ F (x) }

is closed, then F has a fixed point: that is, x∗ ∈ F (x∗ ) for some x∗ ∈ C.

C. Proceeding inductively, we construct sequences x1 , x2 , . . . and y1 , y2 , . . . as

follows:

1. First, choose x1 ∈ C arbitrarily, and choose y1 ∈ F (x1 ).

2. Suppose, for some integer m ≥ 1, that x2 , . . . , xm , y2 , . . . , ym ∈ C

have also already been chosen.

a. Let Am be the m × m matrix with entries

2
am
ij := −kxi − yj k .

b. Choose a Nash equilibrium (ιm , ρm ) of the imitation game

(Am , I).

c. Let
m
X
xm+1 := ρm
j yj ,
j=1

and choose ym+1 ∈ F (xm+1 ).

D. The calculation below shows that the support of ιm is a subset of the set of
i for which kxi − xm+1 k is minimal, since it displays the expected utility for

the mover if xi is chosen as a sum of −kxi − xm+1 k2 and a term that does

not depend on i.

3
 Pm
1. Note that j=1 ρm
j (xm+1 − yj ) = 0.

2. For each i = 1, . . . , m we have:

m
X m
X
2
ρm m
j aij =− ρm
j kxi − yj k
j=1 j=1
Xm
2
=− ρm
j k(xi − xm+1 ) + (xm+1 − yj )k
j=1
Xm
ρm


=− j xi − xm+1 , xi − xm+1
j=1
m
X
xi − xm+1 , ρm


−2 j (xm+1 − yj )
j=1
m
X
ρm


− j xm+1 − yj , xm+1 − yj
j=1
m
X
= −kxi − xm+1 k2 − ρm 2
j kxm+1 − yj k .
j=1

3. Since (ιm , ρm ) is a Nash equilibrium of an imitation game, the support

of the imitator’s mixed strategy ρm is a subset of the support of ιm .

a. Therefore { xi : ρm
i > 0 } is a subset of the set of i for which

kxi − xm+1 k is minimal.

E. Let x∗ be an accumulation point of the sequence {xm }.

1. Let V be a neighborhood of F (x∗ ).

2. Since F is upper semi-continuous, there is ε > 0 such that F (x) ⊂ V

whenever kx − x∗ k < ε.

3. Note that limm→∞ mini≤m kxi − xm+1 k = 0 because C is compact.

4. For any δ ∈ (0, ε) there are arbitrarily large m such that kxm+1 −x∗ k <

δ/2 and the δ/2-ball around xm+1 contains the support of ρm ,

a. If δ < ε, then the ε-ball around x∗ contains { xi : ρm

i > 0 }, so

[
{ yi : ρ m
i > 0} ⊂ F (xi ) ⊂ V.
ρm
i
>0

4
 b. When V is convex, this implies that it contains xm+1 .

c. If V contains xm+1 , then the δ-ball around V contains x∗ , so

the closure of V contains x∗ .

5. Since F (x∗ ) is convex and compact, the intersection of all its closed

convex neighborhoods is F (x∗ ) itself, so x∗ ∈ F (x∗ ).

IV. The Lemke Path Algorithm

A. We present a simple method for proving that an imitation game (A, I) has
a Nash equilibrium.

1. This will not introduce a circularity by appealing to Kakutani’s the-

orem.
B. An I-equilibrium of an imitation game (A, I) is a mixed strategy ρ ∈ ∆m

for the imitator such that the indices (in the range 1, . . . , m) of pure best

responses to ρ for the mover include all indices (again in the range 1, . . . , m,

but now indexing the imitator’s pure strategies) in the support of ρ.

1. If (ι, ρ) is a Nash equilibrium, then ρ is an I-equilibrium.

2. For any I-equilibrium ρ, if ι assigns equal probability to each of the

best responses to ρ and no probability to any other strategies, then

(ι, ρ) is a Nash equilibrium.

3. Thus our goal is to show that there is an I-equilibrium.

C. Let
L := { (ι, κ) : ι = 1, 2, κ = 1, . . . , m }.

1. Let H m := { ρ ∈ IRm :
P
j ρj = 1 }.

2. For each κ = 1, . . . , m let:

a. λ1κ : H m × IR → IR be the function λ1κ (ρ, u) := ρκ ;

a. λ2κ : H m × IR → IR be the function

m
X
λ2κ (ρ, u) := u − aκj ρj .
j=1

5
 3. Let

P := { (ρ, u) ∈ H m × IR : λικ (ρ, u) ≥ 0 for all (ι, κ) ∈ L }.

a. Suppose that (ρ, u) ∈ P and, for each i = 1, . . . , m, either

Pm
ρi = 0 or j=1 aij ρj = u. Then clearly ρ is an I-equilibrium

of the imitation game (A, I).

Pm
b. Conversely, if ρ is an I-equilibrium and u := maxi j=1 aij ρj ,
Pm
then (ρ, u) ∈ P and, for each i, either ρi = 0 or j=1 aij ρj = u.
4. Geometrically, P is a polyhedron: it is the intersection of a finite

collection of half spaces in H m × IR.

a. There are m edges that extend to infinity in the “vertical”

direction.

b. The algorithm may be thought of as descending from infinity

along one of these edges, then proceeding along a path con-

sisting of edges of P until a vertex (ρ, u) such that ρ is an

I-equilibrium is reached.

D. General Position

1. For each α ⊂ L let

Fα := { (ρ, u) ∈ P : λικ (ρ, u) = 0 for all (ι, κ) ∈ α }.

2. We will say that A is in general position if each Fα is either empty or

(m − |α|)-dimensional.
3. The matrices in general position are dense in the space of all m × m

matrices.

a. Since this is well known, and essentially a matter of basic linear

algebra we will leave it as an exercise.

4. Suppose that A is the limit of a sequence {Ar } of matrices in general

position, and for each r there is an I-equilibrium of (Ar , I), say ρr .

6
 a. Since ∆m is compact, by passing to a subsequence we may

insure that the sequence {ρr } converges, say to ρ.

b. For each i, either ρri = 0 for arbitrarily large r, which implies

that ρi = 0, or i is a best response to ρr for the mover in the

imitation game (Ar , I) for arbitrarily large r, in which case i is

a best response to ρ for the mover in the imitation game (A, I),
by virtue of the continuity of expected payoffs.

c. Therefore ρ is an I-equilibrium of (A, I).

d. In particular, if we show that the imitation game (A, I) has an

I-equilibrium whenever A is in general position, then it follows

that for any A there is an I-equilibrium.

E. A basis is an m element set β ⊂ L such that the variables λικ for (ι, κ) ∈ β

constitute a coordinate system for H m × IRk .

1. For example, {(1, 1), . . . , (1, m)} is not a basis, but {(1, 1), . . . , (1, m−

1), (2, 1)} is.

2. A basis is feasible if the origin of the associated coordinate system is

an element of P .

a. Each vertex of P is the origin of the coordinate system deter-

mined by some basis, and the assumption of general position

implies that there is only one such basis.

3. Let π : L → {1, . . . , m} be the projection π(ι, κ) := κ.

4. A feasible basis β is complementary if π(β) = {1, . . . , m}.

a. If (ρ, u) is the origin of the coordinate system determined by β,

then β is complementary if and only, for each 1 ≤ j ≤ m, either

ρj = 0 or the mover’s j th pure strategy is a best response to ρ.

That is, β is complementary if and only ρ is an I-equilibrium

of (A, I).

7
 5. A feasible basis β is µ-almost complementary for 1 ≤ µ ≤ m if

{1, . . . , µ − 1, µ + 1, . . . , m} ⊂ π(β).

a. Note that a complementary basis is necessarily µ-almost com-

plementary.

b. If β is µ-almost complementary but not complementary, then

we say that µ is the missing label , and the unique r such that

(1, r), (2, r) ∈ β is called the redundant label .

F. An undirected graph is a pair G = (V, E) where V is a finite set whose

elements are called vertices and E is a finite set whose elements are called
edges, such that each edge has two endpoints in V .

1. If the endpoints are always distinct (that is, there are no “ loops”)

and for any two distinct vertices there is at most one edge with those

vertices as its endpoints, then G is simple.

a. All graphs considered here are simple.

b. Henceforth whenever we speak of a ‘graph’ will always mean a

simple connected graph.

2. If it exists, the edge with endpoints u and v will be denoted by uv.

3. For each u ∈ V :

a. the neighbors of u are those v such that uv ∈ E;

b. the degree of u is the number of neighbors it has.

G. For each 1 ≤ µ ≤ m we define a simple undirected graph Gµ = (Vµ , Eµ ) by:

1. letting Vµ be the set of µ-almost complementary bases;

2. specifying that two such bases β and β ′ are the endpoints of an edge

ββ ′ ∈ Eµ if and only if

π(β ∩ β ′ ) = {1, . . . , µ − 1, µ + 1, . . . , m}.

8
 3. The algorithm now has the following description.

a. It begins at a particular µ-almost complementary basis βµ .

b. If βµ is not complementary, then its degree is one, and all other

µ-almost complementary bases are either complementary or

have degree two.

c. This implies that Gµ has a path leading away from βµ that has

a unique continuation as long as it encounters only µ-almost

complementary bases that are not complementary. But Vµ is

finite, so it must eventually arrive at a complementary basis.

4. The following two results complete the proof of Proposition by show-

ing that Gµ has the properties asserted above.

Lemma: If β is a feasible basis and (ι, κ) ∈ β, then either:

(a) β \ {(ι, κ)} = {(1, 1), . . . , (1, m)} \ {(1, µ)} for some µ, in which case there is
no other feasible basis β ′ containing β \ {(ι, κ)}, or

(b) there is exactly one other feasible basis β ′ containing β \ {(ι, κ)}.

Proof. The general position assumption implies that Fβ∪{(ι′ ,κ′ )} = ∅ for all (ι′ , κ′ ) ∈

L \ β, so for each such (ι′ , κ′ ) the linear functional λι′ κ′ is positive at the origin of the

coordinate system determined by β. Therefore the set of points (ρ, u) with λικ (ρ, u) > 0

and λι′ κ′ (ρ, u) = 0 for all (ι′ , κ′ ) ∈ β \ {(ι, κ)} has a nonempty intersection with P . Let e
denote this intersection. If β ′ is a feasible basis with β ∩β ′ = β \{(ι, κ)}, then e contains the

interior of the line segment between the origins of the coordinate systems determined by β

and β ′ . Therefore there is either one such β ′ or none according to whether e is bounded.
The projection { ρ : (ρ, u) ∈ e } is always bounded, since it is contained in ∆m , so if e is

unbounded, this set must be a single point, which implies that for all (ι′ , κ′ ) ∈ β \ {(ι, κ)},

λι′ κ′ (ρ, u) does not depend on u.

Proposition: There is a unique µ-almost complementary basis βµ , called the µ-initial

9
basis, such that

{(1, 1), . . . , (1, m)} \ {(1, µ)} ⊂ βµ .

As a vertex of Gµ , βµ has degree 0 if it is complementary and degree 1 otherwise. Each

other µ-almost complementary basis has degree 1 if it is complementary and degree 2

otherwise.

Proof. Let uµ := min{ u : (ρ, u) ∈ P }. Then (βµ , uµ ) is the origin of the coordinate system
determined by some feasible basis βµ , and the general position assumption implies that

there is a unique such βµ .

Let β be a complementary basis. Then (ι, µ) ∈ β for exactly one ι ∈ {1, 2}, and the

last result implies that there is exactly one feasible basis β ′ with β ∩ β ′ = β \ {(ι, µ)} if
β 6= βµ and no such β ′ if β = βµ .

Now suppose that β is a µ-almost complementary basis that is not complementary,

and let r be the redundant label. The last result implies that there is exactly one other
feasible basis β ′ with β ∩ β ′ = β \ {(1, r)}, and there is one other feasible basis β ′ with

β ∩ β ′ = β \ {(2, r)} if β 6= βµ and none if β = βµ .

10