Problem set 10 solution

In this set, we are trying to go over the versions of the Prisoner’s dilemma we went over in
lectures.

Cooperate Defect

Cooperate 3,3 1,7

Defect 7,1 2,2

What we are trying to prove is that as we increase the payoffs of both players from mutual
cooperation (underlined above), more people will cooperate since the level of altruism above
which people decide to cooperate goes down.

For this consider three possible types of individuals:

Egoistic: Her payoffs are given by the table above.

Altruistic: She puts a weight of one seventh on her opponent’s payoff.
Fully Altruistic: She puts a weight of one on her opponent’s payoff.

a. What are the Nash equilibria of the game above when played by two Egoistic
players? Explain your answers.

The game above has a unique Nash equilibrium in which both players
defect. To show that it is a Nash equilibrium we have to go over each of
the players and assume that they know that the other defects. Under this
assumption we check that it is a best response for them to defect. If it is
true for all players we have a Nash equilibrium. If not true, and one or
more of the players get a strictly higher payoff from cooperating, then
this is not an equilibrium.
Focusing on the row player, we consider whether she is best responding
to the column player defecting: she gets 2 from defecting and only one
from cooperating so she is best responding.
Focusing on the column player, we consider whether she is best
responding to the row player defecting: she gets 2 from defecting and
only one from cooperating so she is best responding.

Therefore, this is a Nash equilibrium.

To see that it is the only equilibrium there are two ways to answer:

The quick way to answer: In the game above, for each player, the action
defect strictly dominates the action cooperate. No rational player ever
plays a strictly dominated action. In other words, cooperate is never a
best response (for whatever belief the player might have about what her
opponent will do). Therefore, there cannot be any Nash equilibrium in
which a player plays cooperate!

Long way to answer: Go over all the other possibilities of profiles of

actions for the two players and show that they are not equilibria:

1. Row player cooperates and column player defects. This is not an

equilibrium because if we focus on the row player she has a strictly
profitable deviation; given that the column player defects, the row
player gets 1 from cooperating but can get 2 from defecting!
Therefore, this cannot be an equilibrium.
2. Row player defects and column player cooperates. This is not an
equilibrium because if we focus on the column player she has a
strictly profitable deviation; given that the row player defects, the
column player gets 1 from cooperating but can get 2 from
defecting! Therefore, this cannot be an equilibrium.
3. Both players cooperate. This is not an equilibrium because if we
focus on the column player she has a strictly profitable deviation;
 given that the row player cooperates, the column player gets 3
from cooperating but can get 7 from defecting! Therefore, this
cannot be an equilibrium.

b. Write down the matrix of the game above when two Altruistic players play this game.
What are the pure strategy Nash equilibria of this game? Explain your answers.

Now each player puts a weight of 1/7 on the payoff of her opponent. The
new game table will be:

Cooperate Defect

Cooperate 3+3/7,3+3/7 1+7/7,7+1/7

Defect 7+1/7,1+7/7 2+2/7,2+2/7

This could be further simplified to:

Cooperate Defect

Cooperate 24/7,24/7 2,50/7

Defect 50/7,2 16/7,16/7

Note that although the payoffs have changed, defect still strictly
dominates cooperate for each player. Therefore the only Nash
equilibrium is for both players to choose Defect.

c. Write down the matrix of the game above when two Fully Altruistic players play this
game. What are the pure strategy Nash equilibria of this game? Explain your
answers.

Now each player puts a weight of 1 on the payoff of her opponent. The
new game table will be:

Cooperate Defect

Cooperate 3+3,3+3 1+7,7+1

Defect 7+1,1+7 2+2,2+2

This could be further simplified to:

Cooperate Defect

Cooperate 6,6 8,8

Defect 8,8 4,4

Note that the payoffs have changed and now defect does not strictly
dominate cooperate for each player.

There are now two pure strategy equilibria:

1. Row player defects, column player cooperates. This is an

equilibrium because both players get 8 which is the most that they
can hope to get in the game. Therefore, none of them has a strictly
profitable deviation!
2. Column player defects, row player cooperates. This is an
equilibrium because both players get 8 which is the most that they
can hope to get in the game. Therefore, none of them has a strictly
profitable deviation!
We also have one mixed strategy equilibrium (this is just a bonus, the
question asks just for pure strategy equilibria):

Cooperate Defect
p 1-p

Cooperate
6,6 8,8
q

Defect
8,8 4,4
1-q

Let us conjecture an equilibrium in which the row player cooperates with

probability q and defects with probability 1-q. The column player
cooperates with probability p and defect with probability 1-p.

In equilibrium, because they mix between the two actions, they have to
get the same expected utility from both actions:

Looking at column player:

Payoff from cooperate: q×6+(1-q)×8
Payoff from defect: q×8+(1-q)×4
In equilibrium she is mixing so she MUST be indifferent between playing
cooperate or defect:

q×6+(1-q)×8=q×8+(1-q)×4

And this implies: q=⅔

Looking at row player:

Payoff from cooperate: p×6+(1-p)×8
Payoff from defect: p×8+(1-p)×4
In equilibrium she is mixing so she MUST be indifferent between playing
cooperate or defect:
p×6+(1-p)×8=p×8+(1-p)×4

And this implies: p=⅔

So the mixed strategy Nash equilibrium is q=p=⅔

Assume now that we change the game by only increasing the payoffs from mutual
cooperation. The new game is:

Cooperate Defect

Cooperate 6.3,6.3 1,7

Defect 7,1 2,2

d. What are the pure strategy Nash equilibria of the game above when played by two
Egoistic players? By two Altruists? By two Fully Altruistic players? Explain your answers.

Egoistic players:

The game above has a unique Nash equilibrium in which both players
defect. To show that it is a Nash equilibrium we have to go over each of
the players and assume that they know that the other defects. Under this
assumption we check that it is a best response for them to defect. If it is
true for all players we have a Nash equilibrium. If not true, andone or
more of the playersget a strictly strictly higher payoff from cooperating,
then this is not an equilibrium.
Focusing on the row player, we consider whether she is best responding
to the column player defecting, she gets 2 from defecting and only one
from cooperating so he is best responding.
Focusing on the column player, we consider whether she is best
responding to the row player defecting, she gets 2 from defecting and
only one from cooperating so she is best responding.

Therefore, this is a Nash equilibrium.

To see that it is the only equilibrium there are two ways to answer:

The quick way to answer: In the game above, for each player, the action
defect strictly dominates the action cooperate. No rational player ever
plays a strictly dominated action. In other words, cooperation is never a
best response (for whatever belief the player might have about what her
opponent will do). Therefore, there cannot be any Nash equilibrium in
which a player cooperates!

Long way to answer: Go over all the other possibilities of profiles of

actions for the two players and show that they are not equilibria:

1. Row player cooperates and column player defects. This is not an

equilibrium because if we focus on the row player she has a strictly
profitable deviation; given that the column player defects, the row
player gets 1 from cooperating but can get 2 from defecting!
Therefore, this cannot be an equilibrium.
2. Row player defects and column player cooperates. This is not an
equilibrium because if we focus on the column player she has a
strictly profitable deviation; given that the row player defects, the
column player gets 1 from cooperating but can get 2 from
defecting! Therefore, this cannot be an equilibrium.
3. Both players cooperate. This is not an equilibrium because if we
focus on the column player she has a strictly profitable deviation;
 given that the row player cooperates, the column player gets 6.3
from cooperating but can get 7 from defecting! Therefore, this
cannot be an equilibrium.

Altruistic players:

Now each player puts a weight of 1/7 on the payoff of her opponent. The
new game table will be:

Cooperate Defect

6.3+6.3/7,
Cooperate 1+7/7,7+1/7
6.3+6.3/7

Defect 7+1/7,1+7/7 2+2/7,2+2/7

This could be further simplified to:

Cooperate Defect
 (6.3×7+6.3)/7,
Cooperate 2,50/7
(6.3×7+6.3)/7

Defect 50/7,2 16/7,16/7

Note that the payoffs have changed so that defecting does not strictly
dominate cooperating for each player. This is because
(6.3×7+6.3)/7 > 50/7!

Therefore now we have two pure strategy Nash equilibria:

1. Both players cooperate. This is an equilibrium as given that the

other player cooperates, a player gets (6.3×7+6.3)/7 if they
cooperate but only 50/7 if they defect. Therefore both players are
best responding and so this is an equilibrium.
2. Both players defect. This is an equilibrium as given that the other
player defects, a player gets 16/7 if they defect but less, 2 if they
cooperate. Therefore both players are best responding and so this
is an equilibrium.

Full Altruists:
Now each player puts a weight of 1 on the payoff of her opponent. The
new game table will be:
 Cooperate Defect

Cooperate 6.3+6.3,6.3+6.3 1+7,7+1

Defect 7+1,1+7 2+2,2+2

This could be further simplified to:

Cooperate Defect

Cooperate 12.6,12.6 8,8

Defect 8,8 4,4

Note that the payoffs have changed and now cooperate strictly
dominates defect for each player. Therefore the only Nash equilibrium is
for both players to choose cooperate.
e. In light of the results above, how can you explain the experimental results we saw in
lectures in which as the payoff from mutual cooperation was increased, the fraction of
subjects in the lab that cooperated increased?

In the experiment we saw that as we increase the payoffs from both

players cooperating (in this question we increased these payoffs from 3
to 6.3) the fraction of players cooperating in the lab increases.

To explain this in view of the above answers, we can conjecture that the
population of lab subjects are of different altruism levels, so that some
are egoistic, some are altruistic and some are fully altruistic. When the
payoff from mutual cooperation was 3, we saw that only the fully
altruistic were cooperating.

But when we increased the payoff from mutual cooperation to 6.3, we

saw that now there are equilibria in which the altruistic also cooperate.
Moreover, the equilibrium for the fully altruistic has changed towards
both of them cooperating in relation to only one of them cooperating
when the payoff was 3. So both of these results go in the direction of
more cooperation.

Therefore, our results above are consistent with the observations in the
lab experiment.