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ECC2610 Lecture 2
ECC2610 Lecture 2
Jackie So
Monash University
1 August 2023
Jackie So ECC2610
Games with Simultaneous Moves
Jackie So ECC2610
Games with Simultaneous Moves
Jackie So ECC2610
Games with Simultaneous Moves
Friday
Contribute Shirk
Contribute 1, 1 -4, 2
Robinson
Shirk 2, -4 0, 0
Jackie So ECC2610
Dominant Strategy
Friday
Contribute Shirk
Contribute 1, 1 -4, 2
Robinson
Shirk 2, -4 0, 0
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Successive Elimination of Dominated Strategies
Friday
Contribute Shirk
Contribute 4, 4 -4, 2
Robinson
Shirk 2, -4 0, 0
Jackie So ECC2610
Successive Elimination of Dominated Strategies
KFC
High Medium Low
High 60, 60 36, 70 36, 35
McDonald Medium 70, 36 50, 50 30, 35
Low 35, 36 35, 30 25, 25
Jackie So ECC2610
Successive Elimination of Dominated Strategies
KFC
High Medium
High 60, 60 36, 70
McDonald
Medium 70, 36 50, 50
Jackie So ECC2610
Successive Elimination of Dominated Strategies
Column
Column
L C R
L C R
U 4, 11 3, 6 5, 12
U 4, 11 3, 6 5, 12
Row M 3, 4 2, 8 4, 6
D 3, 10 4, 6 3, 8
D 3, 10 4, 6 3, 8
Column
Column Column
L R
L R R
U 4, 11 5, 12
Row U 4, 11 5, 12 U 5, 12
D 3, 10 3, 8
Jackie So ECC2610
The Maximin Method
Jackie So ECC2610
The Maximin Method
Jackie So ECC2610
The Maximin Method
Defence
Run Pass Blitz
Run 2 5 13 min = 2
Short Pass 6 5.6 10.5 min = 5.6
Offence
Medium Pass 6 4.5 1 min = 1
Long Pass 10 3 -2 min = -2
max = 10 max = 5.6 max = 13
Offence figures that for each of her rows, Defence will choose the
column with the lowest number in that row.
Therefore, Offence should choose the row that gives her the highest
among these lowest numbers, or the maximum among the minima –
the maximin for short.
Jackie So ECC2610
The Maximin Method
Defence
Run Pass Blitz
Run 2 5 13 min = 2
Short Pass 6 5.6 10.5 min = 5.6
Offence
Medium Pass 6 4.5 1 min = 1
Long Pass 10 3 -2 min = -2
max = 10 max = 5.6 max = 13
Defence reckons that for each of her columns, Row will choose the
row with the largest numbers in that column.
Defence should choose the column with the smallest number among
these largest ones, or the minimum among the maxima – the
minimax.
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The Maximin Method
Column Player
Paper Scissors Rock
Paper 0, 0 -1, 1 1, -1 min = -1
Row Player Scissors 1, -1 0, 0 -1, 1 min = -1
Rock -1, 1 1, -1 0, 0 min = -1
min = -1 min = -1 min = -1
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Nash Equilibrium
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The Battle of Sexes
Husband
Ballet Boxing
Ballet 2, 1 0, 0
Wife
Boxing 0, 0 1, 2
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The Chicken Game
James and Dean take their cars to opposite ends of a street and
start to drive toward each other. The one who swerves to prevent a
collision is the ”chicken”, and the one who keeps going straight is
the winner.
If both maintains a straight course, there is a collision in which both
cars are damaged and both players injured.
Dean
Swerve (Chicken) Straight (Tough)
Swerve (Chicken) 0, 0 -1, 1
James
Straight (Tough) 1, -1 -2, -2
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John F. Nash Jr.
Completed his PhD at the age of 22. His 28 pages thesis
”Non-Cooperative Games” introduces the notion of Nash
equilibrium which vastly expanded the scope of game theory.
Shared the 1994 Nobel Prize with John Harsanyi and Reinhard
Seltan.
His life became the basis for the film A Beautiful Mind, in which
Nash was portrayed by Russell Crowe.
Died in 2015 at the age of 86.
Jackie So ECC2610
A quick review of sets and functions
Definition
A set is a collection of irreducible objects, which we call elements.
E.g. {Up, Down} is the set of actions that a row player can choose.
Let SR = {Up, Down} be a set as defined above.
We say Up is in SR (or Up ∈ SR ) if and only if Up is an element of
SR
We say Left is not in SR or Left ∈
/ SR if Left is not an element of
SR .
The order of elements in a set does not matter, thus
Jackie So ECC2610
A quick review of sets and functions
Definition
The Cartesian product of two nonempty sets X and Y , denoted as
X × Y , is the set of all ordered pairs (x, y ) where x comes from X and y
comes from Y .
Jackie So ECC2610
A quick review of sets and functions
Definition
A subset R of X × Y is called a (binary) relation from X to Y . If (x, y )
is in R, then we think of R as associating the object x with y .
Definition
A function f that maps X onto Y , denoted as f : X → Y , is a relation
f ⊂ X × Y such that for every x ∈ X , there exists exactly one y ∈ Y
such that (x, y ) ∈ f or xfy .
Jackie So ECC2610
A quick review of sets and functions
Definition
A set Y is a subset of another set X if and only if for every element of
Y is also an element of X .
Friday
Contribute Shirk
Contribute 1, 1 -4, 2
Robinson
Shirk 2, -4 0, 0
Jackie So ECC2610
Nash Equilibrium and Best Response Functions
Jackie So ECC2610
Nash Equilibrium and Best Response Functions
For any s2 , s1∗ is called a best response to s2 if and only if
Friday
Contribute Shirk
Contribute 1, 1 -4, 2
Robinson
Shirk 2, -4 0, 0
Jackie So ECC2610
Nash Equilibrium and Best Response Functions
The best response function gives the best response for each possible
strategy of other players. Let B1 and B2 be the best response
functions for Robinson and Friday, then we have B1 : S2 → S1 and
B2 : S1 → S2 .
Writing B1 as a set, we have
Jackie So ECC2610
The Chicken Game Revisited
Dean
Swerve (Chicken) Straight (Tough)
Swerve (Chicken) 0, 0 -1, 1
James
Straight (Tough) 1, -1 -2, -2
Jackie So ECC2610
The Chicken Game Revisited
Dean
Swerve (Chicken) Straight (Tough)
Swerve (Chicken) 0, 0 -1, 1
James
Straight (Tough) 1, -1 -2, -2
Jackie So ECC2610
Prisoner’s Dilemma
Consider the following game
Prisoner 2
Confess Deny
Confess -10, -10 -1, -25
Prisoner 1
Deny -25, -1 -3, -3
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Prisoner’s Dilemma
Player 2
c1 = 20 c2 = 0
c1 = 20 24, 24 12, 32
Player 1
c2 = 0 32, 12 20, 20
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Prisoner’s Dilemma
Jackie So ECC2610
A quick review of differentiation and optimization
Rules of Differentiation
If f (x) = c, then f 0 (x) = 0.
If f (x) = cx, then f 0 (x) = c.
If f (x) = x n , then f 0 (x) = nx n−1 .
If f (x) = g (x) + h(x) then f 0 (x) = g 0 (x) + h0 (x).
If f (x) = g (x) − h(x) then f 0 (x) = g 0 (x) − h0 (x).
f 0 (x) = 0
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Cournot Model
P = 40 − Q = 40 − (q1 + q2 )
The strategy set for both players is R+ with payoff functions equal
to their profit functions,
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Cournot Model
Thus the best response functions are simply the first order
conditions for the above two maximization problems:
∂π1 1
= 40 − 2q1 − q2 − 4 = 0 ⇒ q1∗ = B1 (q2 ) = 18 − q2
∂q1 2
∂π2 1
= 40 − q1 − 2q2 − 4 = 0 ⇒ q2∗ = B2 (q1 ) = 18 − q1
∂q2 2
Jackie So ECC2610
Cournot Model
Jackie So ECC2610
Cournot Model
q2
36
A q = B (q )
A 1 1 2
A
A
A
A
18 H Nash Equilibrium
HHA
HA
12 H
A H
A HH
A HH q = B (q )
A HH2 2 1
A H q1
12 18 36
Jackie So ECC2610
Cournot Model
∂π
First-order condition: = 0 ⇒ 40 − 2Q = 4 ⇒ Q = 18
∂Q
Consider the collusive agreement q1 = q2 = 9
If q2 = 9, firm 2’s best response will be
1
q2 = 18 − (9) = 13.5 > 9
2
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Cournot Model
40 − Q = 4 ⇒ Q = 36, P = 4
To summarise
CS = (40 − P) ∗ Q/2
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Cournot Model
q2
36 q1 = B1 (q2 )
A
A
A
A
So
A
cia
lO
A
18 H
pt
HHA
im
HA
al
H
A H
M
A HH q2 = B2 (q1 )
on
op
A HH
ol
y
A HH
A H q1
18 36
Jackie So ECC2610
Cournot Model
Firm 2
Q=9 Q = 12
Q=9 162, 162 135, 180
Firm 1
Q = 12 180, 135 144, 144
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References
Dixit, Chapter 4 - 5
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