Exam for the course “Applied Game Theory”

– Duration: 2 h – 2nd of February 2023

Master Optimisation
Samson Lasaulce

Note. All written individual documents are allowed but cannot be exchanged. The
use of any communicating device during the exam is not allowed. Think about
identifying independent questions and answering rigorously.

Basic knowledge about the lecture

1. Explain what a Braess paradox is.

2. What is the core of a coalitional form game?

3. What is one the main drawbacks of choosing the core as a solution concept?
Propose another solution concept which would solve this issue.

4. Does it exist a utility function associated with the lexicographic ordering on

R3 ?

5. For a repeated game, is a behavior strategy a special case of a mixed strategy?

Justify your answer.

6. Provide a sufficient condition for the Rosen diagonally strict concavity con-
dition to be met. Define the used quantities.

7. Provide an upper bound for the price of anarchy of a non-atomic routing

game with polynomial costs of degree p ≥ 1.

8. What is the definition of the Nash bargaining solution concept for a game
with two players?

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Exercise 1
Consider a game with one player whose action set is discrete and given by A =
{1, ..., M}, M ≥ 1. The utility function of the player is denoted by u(m), m is the
action index chosen by the player. The player is assumed to use a mixed strategy
that is a vector p of the unit simplex p = (p1 , ..., pM ) with pm ≥ 0, ∑m pm = 1.

1. What is the expression of the entropy H(p) of the vector p?

2. What is the maximum value of the entropy? Prove your answer. For which
vector p is this maximum attained?

3. What is the strategy that maximizes the expected utility

M
u(p) = ∑ pm u(m)?
m=1

4. Let vλ (p) = ∑Mm=1 pm u(m) + λH(p), λ ≥ 0 being a parameter. What is the

strategy that maximizes vλ (p)? Provide its complete expression.

5. Provide a learning strategy which exploits the previous expression.

Exercise 2
Consider a strategic form game for which the action set is given by Ai = [0, A],
A > 0, i ∈ {1, ..., K}, K being the number of players. The utility function of Player
i is given by !
K
ui (ai , a−i ) = bi (ai ) − c ∑ ai
i=1

where bi and c are arbitrary functions.

1. Provide a characterization (not the definition) for a strategic form game to be

an exact potential game.

2. Using the previous characterization, prove that the considered game is po-
tential.

3. Now, prove that the game is an exact potential game by exhibiting a potential
function φ.

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 4. From now on, we assume that bi is increasing and strictly concave and c is
increasing and strictly convex. Does the game have a pure Nash equilibrium?
Prove your answer in two different ways.

5. From now on, we specialize further the form of bi and c as follows: bi (ai ) =
αi a2i + βi ai + γi and c(x) = δi x2 + εi x + ζi where all introduced parameters
are such that all the assumptions (concavity, monotonicity, ...) are met. Is
there a unique pure Nash equilibrium? Prove your answer.

6. Find the pure equilibrium/equilibria of the game.

7. Provide sufficient conditions under which the social optimum point of the
game is unique and express it.

8. What is the the price of anarchy of this game?

Exercise 3
Consider a game with two players 1 and 2, and Nature is denoted by 0. Assume
the following action sets: A0 = {(a, b), (c, d)}, A1 = A2 = {(A, 0), (0, A)}, with
a ≥ 0, b ≥ 0, c ≥ 0, d ≥ 0. We now assume the game is repeated and the nature
is assumed to be an i.i.d. discrete-time random process (A0,t )t≥1 . Consider the
corresponding stochastic game (as studied during the course). In particular the
strategies of the long-term game are defined as follows:

A1,t = σ1,t (AT0 , At−1 t−1


1 , A2 )
A2,t = σ2,t (At−1 t−1 t−1
0 , A1 , A2 )

where Atj stands for the classical notation for a sequence of random variables
A j,1 , ..., A j,t .

1. What is an implementable joint probability distribution Q(a0 , a1 , a2 )?

2. By assuming the above information structure, what is a necessary and suffi-

cient condition for a joint distribution Q to be implementable?

Exercise 4
Consider a game with K players. The action of Player i ∈ {1, ..., K} is a vector
in RN which is denoted by ai = (ai,1 , ..., ai,N ). The set of of Player i is given by

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Ai = {ai ∈ RN : ∀n, ai,n ≥ 0, ∑Nn=1 ai,n ≤ A}, A > 0. The utility function of Player i
is assumed to be:
∑N f (γi,n (ai , a−i ))
ui (ai , a−i ) = n=1 N
∑n=1 ai,n
where f : [0, +∞) 7→ [0, 1] is a function which is increasing, sigmoidal, twice dif-
ferential and ensures the continuity of ui everywhere. The quantity γi,n is given
by
gi,n ai,n
γi,n =
1 + ∑ j̸=i g j,n a j,n
where gi,n , g j,n are positive constants/parameters.

1. Does this game have a mixed Nash equilibrium? Justify your answer.

2. Does this game have a pure Nash equilibrium? Justify your answer.

3. Prove that action profiles for which each player only uses one component of
its action vector can form equilibria (in this case player’s action are a scaled
version of the vectors of the canonical basis of RN .

4. For N = 1 and K = 2, express the Nash equilibrium/equilibria.

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