IA168 - FIRST HOMEWORK

Martin Wenzl
December 6, 2020

1 Problem 1
Let G = (N, (Si )i∈N , (ui )i∈N ) be the given game. We define

• N = {1, 2} as the finite set of players

• S1 = {2, 4, 6} is the set of pure strategies of player one
• S2 = {1, 3, 5} is the set of pure strategies of player two
• let s = (s1 , s2 ) ∈ S1 × S2 be any strategic vector, then we define payoff
function of player one as:

|s1 − s2 | s1 > s2
u1 ((s1 , s2 )) =
s1 + s2 otherwise
and the payoff function of player two as:

|s1 − s2 | s2 > s1
u2 ((s1 , s2 )) =
s1 + s2 otherwise

2 Problem 2
Let have player set P = {A, B} and their strategies SA = {A1 , A2 }, SB =
{B1 , B2 , B3 }. Following tables give examples of required games.

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3 Problem 3
Let G be any finite strategic-form game and N EG be all NE of G. Let GRat be
the resulting game of the rationalizability of game G and N EGRat be all NE of
GRat . Proof by contradiction: suppose that exists strategic profile s ∈ N EGRat
that s ∈
/ N EG . That would mean that for at least one player p there has to be
strategy sp of player p for which up (sp , s−p ) >= up (s∗ , s−p ), for s∗ ∈ Sp , but
such strategic profile s would already be in N EG . Therefore s ∈ N EG and that
is contradiction, therefore the original statement is true.

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4 Problem 4
I have implemented the IESDS and rationalization for this exact problem in
python thus there are no calculations here. The set of strategies of player one
that survived IESDS is D1 = {3, 4, 5, 6, 7}. The set of strategies of player two
that survived IESDS is D2 = {3, 4, 5, 6, 7}. The set of strategies of player three
that survived IESDS is D3 = {5}. Now we construct the set of all surviving
strategy profiles D = D1 ×D2 ×D3 . The cardinality of set D is 25 thus there are
25 strategic profiles that survived IESDS. Which means that there are 25 IESDS
equilibria. The set of strategies of player one that survived rationalization is
D1 = {4, 6, 7}. The set of strategies of player two that survived rationalization is
D2 = {4, 6, 7}. The set of strategies of player three that survived rationalization
is D3 = {5}. Now we construct the set of all surviving strategy profiles D =
D1 ×D2 ×D3 . The cardinality of set D is 9 thus there are 9 strategic profiles that
survived rationalization. Which means that there are 9 rationalizable equilibria.

5 Problem 5
5.1 a)
The condition means that at some point in time, for some i ∈ N , Aj has to
be a best response (BR further) to A3−j and vice versa. A1 is BR to belief A2
iff u1 ((A1 , A2 )) ≥ u1 ((B1 , A2 )). From this follows condition x ≥ y. We can
now prove that this is sufficient and necessary for A1 to be BR to belief A2 .
Sufficiency is self evident. I will prove necessity for illustration. The necessity
means that following has to be true: A1 is BR to belief A2 implies that x ≥ y.
Proof by contradiction: we suppose that x < y AND A1 is BR to belief A2 . From
x < y follows that A1 is not BR (NBR) to belief A2 . CONTRADICTION. From
this follows that x ≥ y is necessary.
A2 is BR to belief A1 iff u2 ((A1 , A2 )) ≥ u2 ((A1 , B2 )). From this follows that
x ≤ xy. I wont prove the necessity and sufficiency, the argument copies the
earlier argument.
Now we combine those conditions and we get the limitations on x and y.
Those conditions put together x ≥ y AND x ≤ xy is sufficient and necessary
for players to make (A1 , A2 ) play if the play last turn was also (A1 , A2 ). More
explixitly x is positive real number including zero, y is real number restricted
by x’ behaviour. If x = 0 implies that y < 0. If x > 0 implies that y <= 1 AND
x ≥ y.

5.2 b)
The conditions to ensure that we transition from (B1 , B2 ) to (B1 , B2 ) is 1 ≥ xy
AND 1 ≥ y. Now we need to get to (B1 , B2 ) from (A1 , A2 ). Three paths
lead to that place. Path one p1 = ((A1 , A2 ), (B1 , A2 ), (B1 , B2 )), path two p2 =
((A1 , A2 ), (A1 , B2 ), (B1 , B2 )) and path three p3 = ((A1 , A2 ), (B1 , B2 )). p1 gives
x < y AND x ≤ xy. p2 gives x ≥ y AND x > xy. p3 gives x < y AND

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x > xy. Now we three variants. The variant that is sufficient and necessary has
to produce set with the hugest area of those three variants. After drawing each
variant it is obvious that the best variant is variant c and that the sufficient and
necessary condition is y > 1 AND x < 0.

5.3 c)