WIRTSCHAFTSUNIVERSITÄT WIEN

DEPARTMENT OF STRATEGY AND INNOVATION

INSTITUTE FOR MARKETS AND STRATEGY

SBWL Decision Sciences

Game Theory I: Strategic Behavior

Lecture I-6

© WU IMS
 Organization
1200

E$ ▪ E$ standings
1000
• Avg: 681.94
• Min: 157,07
800
• Max: 1131.00
600

400

200

0
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19

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 Organization

▪ Lottery takes place at the end of next lecture.

▪ OK to publish E$ standings?

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 The Prize

▪ Pick your own:

• Amazon voucher of EUR 50, or
• Restaurant voucher over EUR 50

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 Organization

▪ Game theory and experiments

• Coordination games
– Multiple equilibria, equilibrium selection problems
– Coordination and risk/payoff dominance
– Focal points

• Anti-coordination games

• Mixed strategies

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 Experiment 15: Minimum Game

a) Derive all Nash equilibria of the one-shot version of

this simultaneous game, assuming that all players
are rational and that payoffs represent utility. (As it
is difficult to write down a Normal form game for 6
players, argue logically: In which situations does no
player have an incentive to deviate, given what the
other players are doing?)
b) How do the equilibria differ from each other? Pick
two equilibria and present arguments why the
players would coordinate on one or the other?

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 Experiment 15: Minimum Game
Smallest Value of X Chosen in the Group
1 2 3 4 5 6 7
1 E$8.00
Your 2 E$4.00 E$14.40
Choice 3 E$2.00 E$7.20 E$17.60
of 4 E$1.00 E$3.60 E$8.80 E$19.20
X 5 E$0.50 E$1.80 E$4.40 E$9.60 E$20.00
6 E$0.25 E$0.90 E$2.20 E$4.80 E$10.00 E$20.40
7 E$0.13 E$0.45 E$1.10 E$2.40 E$5.00 E$10.20 E$20.60
▪ All strategy combinations where all players choose the same are an Nash
equilibrium. Thus, we have 7 NE.
▪ The equilibrium “all choose 7” yields the highest payoffs for all. However,
when you go for 7, any deviation by another player reduces your payoff
dramatically.
▪ The equilibrium “all choose 1” is the safest. If you go for 1, you earn $8
for sure. It also guarantees you the “highest minimum payoff” (maximin)
→ coordination problems
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 Experiment 15: Minimum Game
▪ Question: How do people coordinate on a specific equilibrium if
there are multiple equilibria, if no communication is allowed? In
game theory, this is called the problem of equilibrium selection.

▪ → refinements: which of many Nash equilibria are “more

rational”?
• Subgame perfection / sequential equilibria
• Trembling hand perfection, evolutionary stability

▪ → equilibrium selection: which of many “rational” Nash

equilibria should we choose?
• Payoff dominance
• Risk dominance
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 Experiment 15: Minimum Game

c) Describe a real-world example for this game, i.e., a

situation in real life/business in which the incentives and
problems are similar to this game?

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 Experiment 15: Minimum Game
▪ Real world example (Do you know more?):
▪ Imagine an airline crew which has to prepare an airplane for take-
off, and each team member receives a bonus based on take-off time:
• the pilots prepare the cockpit and check the instruments
• the flight attendants clean the cabin, others check in the
passengers
• the skycaps fill the luggage into the cargo space
• technicians make some checks of all equipment
• the security guy checks that ominous passenger
▪ The airplane can only take off after all of these people have finished
their jobs. That means the slowest person in the team determines
the success of all team members.
▪ Nobody wants to invest more effort than the slowest member, as
that would be wasted effort.

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 Experiment 15: Minimum Game

▪ Data
d) Analyze the data set of this experiment. Do
participants play equilibrium strategies? On which
equilibria do they coordinate? Is there a change over
the rounds?

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 Experiment 15: Minimum Game
▪“all choose 1”
and
“all choose 7”
most prominent
equilibrium
strategies in first
round

▪ Strong convergence towards “all choose 1” over rounds

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 Out-of-equilibrium dynamics
▪ An inspection of the incentives which players face out of
equilibrium might give you some hints what behavior you should
expect after a number of rounds.
▪ An equilibrium is more robust/more likely to be observed if
incentives outside the equilibrium point into its direction.
▪ However, if more than one equilibrium have such properties, we
might observe high path-dependencies, as over time people‘s
behavior might converge to one or the other depending on the
out-of-equilibrium starting point.
▪ Van Huyck, Cook und Battalio (1997) experimentally tested a
median game. In this game, each of 7 group members‘ payoffs
depends on the median group member‘s decision. Their specific
game had two equilibria.

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 The Median Game

▪ An NE in a symmetric median game (where everybody’s payoff depends

on his and the median decision) must be symmetric.
▪ Why? If your best reply to a certain median is higher than the median,
everybody in the group will think so …
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 The Median Game

▪ There are two Nash equilibria: “everybody chooses 3” and “everybody

chooses 12”. The latter has a higher payoff for everybody.

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 Out-of-equilibrium dynamics

▪ So these two outcomes are predicted as Nash equilibrium.

▪ But it is still interesting to look at the out-of-equilibrium dynamics, in
order to learn how people might end up in a particular equilibrium.
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 Out-of-equilibrium dynamics

▪ If most group members start somewhere such that the median is at or a

little lower than 7, most players want to lower their choice.
▪ If most group members start somewhere slightly above or at 8, then
most players want to raise their choice.
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 3.3.2 Median-Spiele

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 Out-of-equilibrium dynamics
▪ All groups start between 7 and 11, but after 6 rounds no group is
in that range anymore, and no group crosses the “separatix”.
▪ Small differences in the beginning yielded large payoff
differences over all rounds: one equilibrium is much better than
the other, payoff-wise.
▪ Pure equilibrium analysis would not have predicted such
behavior: it does not care about out-of-equilibrium incentives.
▪ However, when there are multiple equilibria, repeated
interaction and some noise in choices, then out-of-equilibrium
incentives tell you a lot about where people might converge in
the end.
▪ → voting with people who want to be on the winner’s side
▪ → fads in fashion, etc.
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 Experiment 16: Coordination

▪ For each of the six coordination games:

a) Derive all pure-strategy Nash equilibria for the game. (For
games 1, 2, 4, 5, and 6 use the Normal form. For game 3, use
logical arguments or math.)
b) Make a prediction about which equilibria will be played.
Justify your prediction: why would you think that it is most
likely that this equilibrium is played?
c) Compare your prediction with the behavior of participants in
the game. Which equilibrium strategy would bring you the
highest expected payoff (given the behavior of participants in
class).

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 Experiment 16: Coordination
Task Equilibria Data Average payoffs as realized in experiment

Name heads / tails. If (heads, heads)

equal, each $10. (tails,tails)
Choose 7, 100, 13, (7,7) (100,100)
261, 99 or 666. If (13,13) (261,261)
equal, each $10. (99,99) (666,666)
Name a. If a + a‘ Any a+a’=100.
<=100, $a. Else 0.
Drive left or right. $- (left,left)
10 if different. (right,right)
Choose 14, 15, 16, (14,14) (15,15)
17, 18 or 100. If (16,16) (17,17)
equal, each $10. (18,18) (100,100)
Name tails / heads. If (heads, heads)
equal, each $10. (tails,tails)

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 Experiment 16: Coordination
Task Equilibria Data Average payoffs as realized in experiment

Name heads / tails. If (heads, heads) heads 96.6% Avg. payoff: 9.6
equal, each $10. (tails,tails) tails 3.4% 0
Choose 7, 100, 13, (7,7) (100,100) 7 100 13 261 99 666
261, 99 or 666. If (13,13) (261,261) Frequency 59% 9% 2% 3% 9% 18%
equal, each $10. (99,99) (666,666) Avg. Payoff 5.2 0.0 0.0 0.0 0.0 1.8
Name a. If a + a‘ Any a+a’=100. 7 10 45 49 50 99
Frequency 2% 2% 6% 10% 81% 3%
<=100, $a. Else 0. Avg. Payoff 7 10 45 49 47.9 0
Drive left or right. $- (left,left) left 28% Avg. payoff: -5
10 if different. (right,right) right 72% -1.9
Choose 14, 15, 16, (14,14) (15,15) 14 15 16 17 18 100
17, 18 or 100. If (16,16) (17,17) Frequency 33% 2% 3% 7% 0% 55%
equal, each $10. (18,18) (100,100) Avg. Payoff 5.3 0.0 0.0 5 - 7.5
Name tails / heads. If (heads, heads) heads 45% Avg. payoff: 5.4
equal, each $10. (tails,tails) tails 55% 6.25

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 Experiment 16: Coordination
Task Equilibria Data Expected payoffs when playing against
participant population
Name heads / tails. If (heads, heads) heads 96.6% Exp. payoff: 9.6
equal, each $10. (tails,tails) tails 3.4% 0.3
Choose 7, 100, 13, (7,7) (100,100) 7 100 13 261 99 666
261, 99 or 666. If (13,13) (261,261) Frequency 59% 9% 2% 3% 9% 18%
equal, each $10. (99,99) (666,666) Exp. Payoff 5.8 0.9 0.2 0.3 0.9 1.9
Name a. If a + a‘ Any a+a’=100. 7 10 45 49 50 99
Frequency 2% 2% 6% 10% 81% 3%
<=100, $a. Else 0. Exp. Payoff 7 10 43 47 48 0
Drive left or right. $- (left,left) left 28% Exp. payoff: -7.2
10 if different. (right,right) right 72% -2.7
Choose 14, 15, 16, (14,14) (15,15) 14 15 16 17 18 100
17, 18 or 100. If (16,16) (17,17) Frequency 33% 2% 3% 7% 0% 55%
equal, each $10. (18,18) (100,100) Exp. Payoff 3.3 0.2 0.3 0.7 0 5.5
Name tails / heads. If (heads, heads) heads 45% Exp. payoff: 4.5
equal, each $10. (tails,tails) tails 55% 5.5

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 Coordination problems
• Usbekistan National Anthem

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 Coordination problems
▪ Sweden
▪ Sep 3,
1967

▪ Left →
Right

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 Focal points
▪ Tomorrow you meet a stranger in Vienna. That‘s all you know,
and there is no communication possible before. Where do you
meet him?
▪ The tasks in the experiment were examples for simple situations
with multiple equilibria.
▪ Schelling (1960) argued that in such situations, people look for a
„focal point“, an equilibrium which differs in some aspects from
the others, is more natural, salient, special, etc.
▪ “focal point for each person’s expectation of what the other
expects him to expect to be expected to do”
▪ This way, joint experiences, cultural similarities, other out-of-
the-game histories serve as coordination devices.
▪ Problem: sometimes there are no focal points, or there are
many, or they are misleading ...
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 Experiment 17: Battle of the Sexes

a) Derive all pure strategy Nash equilibria of the game, using

the Normal form.
b) Compare the equilibria in this game and the ones in the
previous two experiments. What is the main difference?

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 Experiment 17: “Battle of the Sexes”
▪ 2 Nash equilibria: Football fan goes to

• Opera, Opera Opera Football

20 10
• Football, Football Opera fan
Opera
30 10
▪ But one NE favors one player, goes to 0 30
Football
the other NE the other player. 0 20

▪ Thus, while it is still a coordination problem (both players would

prefer to do the same rather than doing something different), there
are strategic incentives in coordination.
▪ → Coordination might be harder than in non-competitive
coordination games (compare previous two experiments).
▪ Problem: coordination failures, both may end up at the wrong
place, without each other.
▪ A fair and efficient scheme in a repeated game (like a good
partnership) might be an alternating equilibrium play.
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 Experiment 17: Battle of the Sexes

▪ Data
c) Compare your analysis with the behavior in the game.
What is the main problem in such game? Could this
problem be solved if the game would be repeated
between the same persons, like in a long-lasting
marriage?

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 Experiment 17: Battle of the Sexes
Round 1 Football fan goes to
Opera 24% Football 76%
20 10
Opera 59% 30
14% 10
44%
Opera fan goes to
10% 0 32% 30
Football 41% 0 20

Round 2 Football fan goes to

Opera 24% Football 76%
20 10
Opera 55% 30
13% 10
42%
Opera fan goes to
11% 0 34% 30
Football 45% 0 20

Round 3 Football fan goes to

Opera 37% Football 62%
20 10
Opera 41% 30
16% 10
26%
Opera fan goes to
22% 0 36% 30
Football 59% 0 20
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 Experiment 18: Chicken

a) Derive all pure strategy Nash equilibria of the game,

using the Normal form.
b) Compare this game to a prisoner’s dilemma game: what
is the crucial difference?
c) Describe the role commitment could play in such a
game: If one player could make a strategic move before
the game, what could that be? (Review what we
discussed about this in Lecture 3 when analyzing
experiment 5.)

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 Experiment 18: Chicken
▪ Again, 2 NE Driver 2
Swerve Straight
• Straight, Swerve 0 20
Swerve
• Swerve, Straight 0 -20
Driver 1
-20 -100
Straight
20 -100
-10
-10
▪ Main difference to Prisoners’ Dilemma: Prisoners’
• In PD, when the other deviates from dilemma
“cooperation”, then I have an incentive to deviate, too.
• In Chicken, when the other deviates, I do not want to deviate
anymore. А не навпаки??? нащо ж мені лишатися на (0, 0) чи тим паче на (-100, -100), якщо я можу отримати (20) замість 0 або (-20)
замість -100

▪ Strategic move: brinkmanship. Disable the steering wheel.

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 Game of chicken
(Not a real) Radio conversation released by the Chief of Naval
Operations, 10-10-95:
▪ #1: Please divert your course 15 degrees to the North to
avoid a collision.
▪ #2: Recommend you divert YOUR course 15 degrees to
South to avoid a collision.
▪ #1: This is the Captain of a US Navy ship. I say again, divert
YOUR course.
▪ #2: I’m a Seaman First Class. Again, divert YOUR course.
▪ #1: THIS IS A US AIRCRAFT CARRIER. WE ARE A LARGE
WARSHIP OF THE US NAVY. DIVERT YOUR COURSE NOW!
▪ #2: This is a lighthouse. Your call.

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 Also Chicken: Hawk and Dove
▪ Contested Resource V in animal world Dove
Bird 2
Hawk
▪ Each bird can choose whether V/2 V
to be a hawk or a dove. Dove
V/2 0
Bird 1
▪ Hawks always fight, doves Hawk
0 (V-C)/2
V (V-C)/2
peacefully back off at no cost.
▪ Thus, if two hawks meet, there will be a fight, and fight costs C,
with C > V. If two doves meet, they share.
▪ What bird do you want to be if there are many hawks?
▪ What if there are many doves?
▪ Are there stable Hawk/Dove bird populations?
▪ → evolutionary game theory
▪ → “evolutionary stable equilibria” → NE refinement
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 Experiment 18: Chicken

▪ Data
d) Analyze the data set of this experiment. What is the
main problem in such games?

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 Experiment 18: Chicken
Round 1 Exp.
Swerve Straight payoffs
0 20
Swerve 62% 0 39% -20 24% -7.6
Driver
-20 14% -100
Straight 38% 20
24% -100 -25.5
Round 2 Swerve Straight
0 20
Swerve 55% 0 30% -20 25% -9
Driver
-20 -100
Straight 45% 25% 20%
20 -100 -33.8
Round 3
Swerve Straight
0 20
Swerve 52% 0 48% -20 27% -9.7
Driver
-20 -100
Straight 48% 20
27% -100
23% -38
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 Experiment 19: Penalty kick

a) Analyze the role of pre-play communication in this

game? What message should the Striker send? How
should the Keeper react to that message?
b) Ignoring the message stage, derive all pure strategy
Nash equilibria of the one-shot game, using the Normal
form.

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 Experiment 19: Penalty kick
Keeper
▪ Pre-play communication? Left Right
20 -20
▪ If the choice of the Striker Left
-20 20
is correlated with his message (i.e. in any way
Striker
-20 20
dependent on it), then the Right
20 -20
Keeper always has a best
reply, which is bad for the Striker.
▪ Thus, the choice of the Striker should be uncorrelated to his
message. As a result, pre-play communication is meaningless,
„cheap talk”, and the Keeper should not react to it.
▪ Nash equilibria?
▪ There is no equilibrium in pure strategies: none of the four
situations is stable, in each one player has an incentive to deviate.

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 Experiment 19: Penalty kick
c) Assume that the Striker could play a “randomized” strategy in
which he chooses “Left” with probability P% and “Right” with
probability 100%-P%.
• Now, for the probabilities of P=30%, P=50%, and P=70%, check
what the best answer(s) of the Keeper would be. Would in turn
the Striker’s chosen P% also be the best answer to the Keeper’s
best answer?
• Do the same analysis for the “Keeper”, who might choose “Left”
with probability Q% and “Right” with probability 100%-Q%.
• Can you state a Nash equilibrium in which both players choose a
P% and Q% such that their “randomized” strategies are best
answers to each other?

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 Experiment 19: Penalty kick
Keeper
Left Right
20 -20
Left
-20 20
Striker
-20 20
Right
20 -20

▪ Both players have the possibility to choose a strategy which

chooses randomly from the available pure strategies given some
probability distribution.
▪ In Nash equilibrium, beliefs are right.
▪ Thus, we are looking for a situation where each chooses a
strategy where he cannot do better given the other‘s strategy,
but still the other correctly expects this strategy.

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 Experiment 19: Penalty kick
Keeper
Left Right
▪ Imagine you are playing Left
20 -20
this game as a striker Striker
-20 20
against a keeper for 100 -20 20
Right
rounds. 20 -20

▪ Before the 100 rounds, you have to state with which probability
you shoot “Left”, and with which probability you shoot “Right”.
This strategy will then be implemented in all 100 rounds.
▪ The keeper will be informed about your strategy. S/he then plays
round by round against your strategy and decides in each of the
100 rounds whether to dive “Left” or “Right”.

▪ Which probabilities would you choose?

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 Experiment 19: Penalty kick
Keeper
▪ In a mixed strategy, a player chooses Left q Right 1-q
a probability distribution p
Left
20 -20
over her pure strategies. -20 20
Striker
1-p
▪ Now, say Striker plays a mixed Right
20
-20
-20
20

strategy p to which the Keeper

prefers to dive Left rather than Right. Then, the Striker will expect her
to dive Left, so the Striker’s best answer is just to shoot right and not
mix.
▪ Thus, the only stable situation in this game is where the Keeper is
indifferent between Left and Right, given the Striker’s mixed strategy.
Vice versa, the Striker needs to be indifferent with respect to the
Keeper’s strategy in a stable mixed strategy situation.
▪ In other words: each player wants to keep the other player guessing
about her action.
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 Experiment 19: Penalty kick
Keeper
Keeper’s best response function to Left q Right 1-q
Striker’s p choice
p 20 -20
Left
Striker’s best response function to -20 20
Keeper’s q choice Striker
1-p -20 20
Striker’s p Right
20 -20
1
Left
▪ The only situation where both
play best response is where the
best reply functions intersect: at
0.5 p=q=0.5
▪ In math:
p*20+(1-p)*-20 = p*-20+(1-p)*20
20p-20+20p=-20p+20-20p |+20+40p
Righ
t 0 80p=40 → p=0.5
Right 0.5 Left 1
Keeper’s q
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 Experiment 19: Penalty kick
▪ Data
d) Analyze the data set of this experiment. Specifically,
look at how individual participants play over the
rounds. How does that relate to the results from your
analysis under c)?

© WU IMS 44
 Experiment 19: Penalty kick
% message
Keeper
Round 1 Left 66% Right 34% left correct
Left 69% -20, 20 20, -20
Striker
Right 31% 20, -20 -20, 20
69% 79%
Keeper
Round 2 Left 55% Right 45%
-20, 20 20, -20
Striker
Left 52% 66% 66%
Right 48% 20, -20 -20, 20
Keeper
Round 3 Left 66% Right 34%

Striker
Left 48% -20, 20 20, -20 66% 55%
Right 52% 20, -20 -20, 20
Keeper
Round 4 Left 52% Right 48%
-20, 20 20, -20
Striker
Left 55% 72% 62%
Right 45% 20, -20 -20, 20
Keeper
Round 5 Left 52% Right 48%
Left 55% -20, 20 20, -20
Striker
Right 45% 20, -20 -20, 20 59% 62%
© WU IMS
 ▪ Participants seem to
randomize (only 5
rounds observed ):
• 74% switch at least
once within a role
• 57% at least once
sent the wrong
message as Striker

© WU IMS 46
 WC 2006 Quarter finals: GER – ARG
1:1 after regular time → Penalty shootout

Keeper coach Andi Köpke gives Keeper Jens

Lehmann a cheat sheet
© WU IMS
 WC 2006 Quarter finals: GER – ARG
1:1 after regular time → Penalty shootout

If people randomize, why would

Lehman need a cheat sheet?
▪ Real people have a hard time to randomize ...
▪ Use a random device!
• Airport
© WU IMS
 Mixed strategies
▪ Mixed strategy: player chooses a probability distribution
over his pure strategies.
• → plays each of his pure strategies with a certain
probability.

▪ Mixed strategy Nash equilibrium:

• combination of all players’ probability distributions over
pure strategies
• such that no player has an incentive to play a different
probability distribution.

© WU IMS 49
 Mixed strategies
▪ Necessary condition to play a mixed strategy:
• players must be indifferent between their pure strategies (which
they play with positive probability)
• because if one pure strategy is better than others, they would
choose that pure strategy with 100% and not mix.

▪ Thus, in a (purely) mixed-strategy Nash equilibrium,

• each player chooses a mixed strategy such that the other player is
indifferent which pure strategy to choose,
• and therefore will play a mixed strategy, too.

▪ Thus, this is how we solve for a mixed strategy equilibrium:

• For each player we are looking for the mixed strategy which sets
the other players indifferent between their pure strategies.
© WU IMS 50
 Experiment 18: Chicken
Driver 2
▪ 2 pure strategy Nash equilibria q Swerve Straight 1-q
• Straight, Swerve p 0 20
Swerve
• Swerve, Straight Driver 1
0 -20
1-p -20 -100
Straight
20 -100

▪ But there is also a mixed-strategy equilibrium.

▪ Now assume than one driver swerves with probability p, and the
other driver swerves with probability q.

▪ For which p and q is this an equilibrium?

© WU IMS 51
 Experiment 18: Chicken
▪ 2 pure strategy Nash equilibria Driver 2
q Swerve Straight 1-q
• Straight, Swerve p 0 20
• Swerve, Straight Swerve
0 -20
Driver 1
1-p -20 -100
Straight
20 -100

▪ When we play a mixed strategy, and he prefers one over the other, then
he will purely play the one he prefers, which also brings us back to our
pure strategy best response. Thus, we have to set him indifferent. This
applies to both drivers (symmetric game).
▪ The other is indifferent if p*0 + (1-p)*-20 = p*20 + (1-p)*-100
▪ → -20+20p=20p-100+100p → 80 = 100p → p=8/10 → q=8/10
▪ Thus, in a symmetric mixed strategy Nash equilibrium, both drivers
swerve with a probability of 80%. Nobody has an incentive to deviate, as
they are indifferent between Swerve and Straight.
© WU IMS 52
 Experiment 18: Chicken
Driver 2’s best response Driver 2
function to Driver 1’s p choice q Swerve Straight 1-q
p 0 20
Driver 1’s best response Swerve
function to Driver 2’s q choice 0 -20
Driver 1
Driver 2’s q 1-p -20 -100
1 Straight
20 -100
Swerve
▪ There are three equilibria:
• p=0, q=1
0.5 • p=1, q=0
• p=0.8, q=0.8

Straigh
t 0
Straight 0.5 Swerve1
Driver 1’s p
© WU IMS 53
 Hawk and Dove
▪ 2 pure strategy Nash equilibria Bird 2
• Dove, Hawk p Dove Hawk 1-p
• Hawk, Dove p V/2 V
Dove
▪ But none of the pure strategies is Bird 1
V/2 0
“evolutionary stable”: If the whole 1-p 0 (V-C)/2
population would be Hawks, a Dove Hawk
V (V-C)/2
mutation would be quite successful,
relatively, and therefore proliferate.
▪ In a mixed equilibrium, as in an evolutionary stable equilibrium, there must be
no strategy available which performs better against the population than the
current population → indifference
▪ Let p be the share of Doves, and (1-p) the share of Hawks. Then:
▪ p*V/2 + (1-p)*0 = p*V + (1-p)*(V-C)/2 → p = 1-V/C
▪ The evolutionary stable proportion of Hawks and Doves is V/C to 1-V/C. That is,
the higher the value of resource V and the lower costs of fighting, the more
Hawks. If V>C, all will be Hawks (and we got ourselves an evolutionary
prisoner’s dilemma).
© WU IMS 54
 Experiment 17: Battle of the Sexes
Football fan goes to
▪ 2 pure strategy Nash equilibria:
• Opera, Opera q Opera Football 1-q
p 20 10
• Football, Football Opera
30 10
Opera fan
goes to 1-p 0 30
▪ Assume that the Opera fan plays Football
0 20
Opera with probability, p, and
Football with probability (1-p). Similar, Football fan plays Opera with q,
and Football with (1-q).
▪ Now, we know that if I play a strategy where the other is not indifferent
between both pure strategies, he will choose one of them. So the
condition is to set him indifferent.
▪ Opera fan tries to set Football fan indifferent, such that
p*20+(1-p)*0=p*10+(1-p)*30 →20p=10p+30-30p → 40p=30 → p= ¾
▪ Football fan tries to set Opera fan indifferent such that
q*30+(1-q)*10=q*0+(1-q)*20 →30q+10-10q=20-20q→40q=10→ q= ¼
▪ In the mixed NE, both choose their favorite in 75% of the cases.
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 Rock, Paper, Scissors
▪ Example 3:
• 2 player Rock, Paper, Scissors game:
▪ What is the equilibrium?
1 Player 1 Player 2
• Scissors-Scissors 0 0
• Scissors-Paper 1 -1
• Scissors-Rock 2 -1 1
• Paper-Scissors -1 1
3 • Paper-Paper 0 0
• Paper-Rock 1 -1
• Rock-Scissors 1 -1
• Rock-Paper -1 1
• Rock-Rock 0 0
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 Scissors, Paper, Rock
▪ Example 3:
• 2 player Rock, Paper, Scissors game:
▪ What is the equilibrium? Rock Paper Scissors
Rock 0 1 -1
▪ Bart & Lisa 0 -1 1
Paper -1 0 1
1 0 -1
Scissors 1 -1 0
-1 1 0

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 Scissors, Paper, Rock
▪ Example 3:
• 2 player Rock, Paper, Scissors game :
▪ What is the equilibrium? Rock Paper Scissors
Rock p 0 1 -1
▪ Bart & Lisa 0 -1 1
Paper q -1 0 1
1 0 -1
▪ Mixed
Equilibrium: Scissors 1 -1 0
1-p-q -1 1 0

▪ p*0+q*-1+(1-p-q)*1 = p*1 + q*0 + (1-p-q)*-1 = p*-1 + q*1 + (1-p-q)*0

▪ -2q+1-p = 2p -1+q = -p + q
▪ 2p -1+q = -p + q → 3p =1 → p=1/3
▪ -2q+1-p = -p + q→ -3q = -1 → q=1/3 → (1-p-q)=1/3

▪ → A game of pure luck: play randomly Rock, Paper, Scissors …

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 Summary
▪ In a mixed strategy, a player chooses a probability distribution
over his pure strategies.
▪ Thus, a mixed strategy equilibrium specifies a combination of all
players’ probability distributions over pure strategies such that no
player has an incentive to play a different probability distribution.
▪ Necessary condition for each mixed strategy equilibrium is that
players must be indifferent between their pure strategies (which
they play with positive probability), because if not, they would
play a pure strategy with 100%.
▪ Thus, to find a mixed strategy equilibrium, we look at the
probability distribution for each player which sets the other
players indifferent.
▪ Counter-intuitive: Only the payoffs of the other player are
important for your equilibrium strategy.
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 “Assignment” for last lecture
▪ Work through the exam preparation questions.
▪ Last question:
Come up with a question which you could imagine being asked in the exam.
• The question should be short, but not too simple (you should not have
been able to answer that question before the Strategy I course).
• It should be possible to give the answer in 1-3 sentences.
• Write down that question.
• If your question involves a game in extensive or normal form, write down
the game on an A4 sheet, and be prepared to draw it in class on the white
board.
• Bring the question to next class, and please, for keeping the fun, do not
share yet your question and answer with other students.

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 Experiments

▪ 3 experiments in preparation of Game Theory II – Lecture 1.

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