Homework assignment 2

1. Find all Nash equilibria for the game described by the following payoff matrix:

Player B

L R

U 1, 1 4, 2
Player A
D 3, 3 2, 2
Hint: This game has both pure- strategy
equilibrium and mixed-strategy equilibrium.

Solution:

Outcomes/profiles of actions are ordered in the same way; however we can find a pair
of lotteries whose expected payoffs are ordered differently by the table:

Player B

L R

U
Player A 1, 1 4, 2

D 3, 3 2, 2

A mixed strategy of a player in a strategic game is a probability distribution over the

player’s actions (in other words: we now allow each player to choose a probability
distribution over her set of actions rather than restricting her to choose a single
deterministic actions)
Player A considers Player B’s half of the game and determines their mixed-strategy.

Player B

L R

U 1 2
Player A
D 3 2

L: 1*x + 2*(1-x) = x + 2 – 2x = 2 – x
 R: 3*x + 2*(1-x) = 3x +2 -2x = x +2
So, 2 – x = x + 2
 2x = 0
 x=0
Player 1 should play U: 0, D: 1
Player 1 plays strategy D only other than strategy U.

Player 2 considers Player 1’s half of the game and determines their mixed-strategy.

Player B

L R

U 1 4
Player A
D 3 2

U: 1*x + 4*(1-x) = 4-3x

D: 3*x + 2*(1-x) = 3x + 2 – 2x = x+2

So, 4- 3x = x+2
 4x =2
 x=1/2

Player B should play L: ½, R: ½

So, player B has equalising strategy.

 We denote α a profile of mixed strategies; α i (ai ) is the probability assigned by player

i’s mixed strategy α i to her actiona i.
 A mixed strategy may assign probability 1 to a single action: by allowing a player to
choose probability distributions, we encompass the choice of deterministic actions
(pure strategies)

There are at least two natural ways to introduce the idea of mixing into the
evolutionary framework. First, it could be that each individual is hard-wired to play a
pure strategy, but some portion of the population plays one strategy while the rest of
the population plays another.

2. Find all Nash equilibria for the game described by the following payoff matrix:
 Player 2

L R

U 1, 1 4, 0
Player 1
D
4, 0 3, 3

In the mixed-strategy equilibrium that you find, Player 1

plays strategy U more often than strategy D. One of your friends remarks that your
answer must be wrong because clearly for Player 1 strategy D is more attractive than
strategy U. This is because both U and D give Player 1 a payoff of 4 on the off-diagonal
elements of the payoff matrix, but D gives Player 1 a payoff of 3 on the diagonal while U
only gives Player 1 a payoff of 1 on the diagonal. Explain what is wrong with this
reasoning.

Solution:

Player 2

L R

U 1, 1 4, 0
Player 1
D 4, 0 3, 3

Player 1 considers Player 2’s half of the game and determines their mixed-strategy.

Player 2

L R

U 1 0
Player 1
D 0 3

L: 1*x + 0*(1-x) = x
R: 0*x + 3*(1-x) = 3-3x
So, x = 3-3x
 x =3/4
 Player 1 should play U: ¾, D: ¼
Player 1 plays strategy U more often than strategy D.

Player 2 considers Player 1’s half of the game and determines their mixed-strategy.

Player 2

L R

U 1 4
Player 1
D 4 3

U: 1*x + 4*(1-x) = 4-3x

D: 4*x + 3*(1-x) = x+3

So, 4- 3x = x+3
 4x =1
 x=1/4

Player 2 should play L: 1/4, R: 1- ¼ =3/4

Instead of giving less payoff than D, U has the more play. Because in the second column of D
payoff 3 exists and as more priority is given to first column so in first column 0 is there.
Diagonal payoff is also 0.
Here probability of (1-x) is multiplied to the payoff in second column.
So, always in mixed strategy this argument arises but it is wrong.

3. Find all pure-strategy Nash equilibria in the following payoff matrix:

Player B
 x y

x 2, 2 0, 0
Player A
y 0, 0 1, 1
Next find all evolutionally stable strategies.

Solution:

A weaker equilibrium concept than a dominant strategy profile is that of a pure strategy Nash
equilibrium. In a Nash equilibrium profile, each player's strategy does not have to be the best
option regardless of what the other players do, it just has to be the best response to what all
other players are doing in that profile.

Pure- Strategy Nash equilibria is (x, x) and (y, y).

Player B

x y

x 2, 2 0, 0
Player A
y 0, 0 1, 1

The underlined (2, 2) and (1, 1) is the pure strategy Nash equilibria.
Player B

x y

x
Player A 2 0
y
0 1

x: 2*q + 0*(1-q) = 2q

y: 0*q + 1*(1-q) = 1-q

The condition for evolutionary stable strategy:
2q > 1-q
 3q > 1
 q > 1/3

Like the above the same condition is also here evolutionary stable strategy:
 Player B

x y

x
Player A 2 0
y
0 1

x: 2*p + 0*(1-p) =2p

y: 0* p+ 1*(1-p) =1-p

2p > 1-p
 p > 1/3

There is also a relationship between evolutionarily stable strategies and the concept of a strict
Nash equilibrium.
We say that a choice of strategies is a strict Nash equilibrium if each player is using the
unique best response to what the other player is doing. We can check that for symmetric two-
player, two-strategy games, the condition for (A; B) to be a strict Nash equilibrium is that a >
c in general.

So we see that in fact these different notions of equilibrium naturally refine each other.

4. There are two cities A and B joined by routes. There are 80 travellers who begin
in A and must travel to B. The variables x and y denote the numbers of travellers
using the respective road between its endpoints. The times are given for each
edge in minutes per traveller. Nash equilibria are determined subject to the
assumption that the travellers simultaneously choose which route to use. The
social cost of traffic is understood as the sum of travel times over all the
travellers.
There are two routes between A and B. Route I begins with a highway leaving city A, this
highway takes one hour of travel time regardless of how many travellers use it, and ends with
a local street leading into city B.
This local street near city B requires a travel time in minutes equal to 10 plus the number of
travellers who use the street. Route II begins with a local street leaving city A, which requires
a travel time in minutes equal to 10 plus the number of travellers who use this street, and ends
with a highway into city B which requires one hour of travel time regardless of the number of
travellers who use this highway.
(a) Consider first this network as it was before direct connections between C and
D of no travel time were built. Find the Nash equilibrium.

Solution:

Travel time (in minutes) when there are x cars using the edge. Here, the A-D and C-B edges
are insensitive to congestion: 10+x and 10+ y travellers using this edge respectively.
On the other hand, the A-C and D-B edges are highly sensitive to congestion: for each one, 60
travellers are there.
There are 80 travellers who want to go from A to B.
There are two possible routes that each traveller can choose: the upper route through C, or the
lower route through D.

60
=1
10+ y
⇒ y =50

10+ x
=1
60
⇒ x=60−10
¿ 50

(b) Consider this network with direct connections between C and D of no travel
time available, as in Figure 1. Find the Nash equilibrium. What happens to
the total travel time as a result of the availability of the new roads, comparing
to the traffic in Nash equilibrium in (a)?

By checking the creation of the edge from C to D has in fact made the route through C and D
a dominant strategy for all drivers: regardless of the current traffic pattern, you gain by
switching your route to go through C and D.

Total-Travel-Time (e) = T e ( 1 ) +T e ( 2 )+ T e ( 3 )+ …+T e ( 80 )

¿ 80 ×T e ( 80 )
¿ 80 ×1
¿ 80 min

In other words, once the fast highway from C to D is built, the route through C and D acts
like a “vortex” that draws all drivers into it — to the detriment of all. In the new network
there is no way, given individually self-interested behaviour by the drivers, to get back to the
even-balance solution that was better for everyone.
 (c) You can assign travellers to routes, as they are depicted in Figure 1. Propose
an assignment of routes that reduces the social cost of traffic relative to what
it was in Nash equilibrium in part (a).

The equilibrium occurs at the intersection of the demand curve with the average cost curve at
the point B. The marginal traveller at this point is indifferent between travelling and not
travelling, he faces a cost corresponding to the line segment A-B and a benefit of the same
size.
For the marginal traveller at point B, this cost corresponds to the line segment A-C. So the
last traveller imposes a net loss corresponding to the line segment B-C on the group of all
travellers. If usage was reduced to the point where the MC curve crosses the demand curve,
then the corresponding loss is zero for the traveller at the point d.
Each traveller has a scheduling cost expressing his/her preferences concerning the timing of
the trip. Travellers are assumed to have a preferred arrival time t* and they dislike arriving
earlier or later at the destination. Travellers also prefer the trip to be as quick as possible.
There is an equilibrium in which no one chooses to use the second new route described
above.