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4. Static Games

Now consider the payo to player 2. 2 (1 , 2 ) = pq + p(1 q) + (1 p)q (1 p)(1 q) = 1 + 2p + 2q(1 2p) Clearly, if p < 1 then player 2s best response is to choose q = 1 (i.e., 2 = (1, 0) 2 or play Heads). On the other hand, if p > 1 then player 2s best response is 2 to choose q = 0 (i.e., 2 = (0, 1) or play Tails). If p = 1 then every mixed 2 (and pure) strategy is a best response. So the only pair of strategies for which each is best response to the other is 1 = 2 = ( 1 , 1 ). That is, 2 2
[1 , 2 ] =

1 1 , 2 2

1 1 , 2 2

is a Nash equilibrium and the expected payos for each player are
1 (1 , 2 ) = 2 (1 , 2 ) = 0 .

Remark 4.22
In contrast to single-player decision models (see Theorem 1.32), there is no solution to the Matching Pennies game involving only non-randomising strategies. In any given realisation of the Matching Pennies game, the outcome will be one of (H, H), (H, T ), (T, H), or (T, T ) each with probability 1 . The out4 come of a game occurs as a result of the strategies chosen by the players, but a players strategy is not the same as a choice of outcome.

Exercise 4.4
Find all the Nash equilibria of the following games. (a) P1 U D P2 L 4, 3 2, 2 (b) R 2, 2 1, 1 P1 F M P2 R 0, 0 1, 2

W 2, 1 0, 0

We can often simplify the process of nding Nash equilibria by making use of the next two theorems. The rst of these theorems makes it easy to nd pure-strategy Nash equilibria.

Theorem 4.23
Suppose there exists a pair of pure strategies (s , s ) such that 1 2 1 (s , s ) 1 (s1 , s ) s1 S1 1 2 2

4.4 Nash Equilibria

73

and 2 (s , s ) 2 (s , s2 ) s2 S2 . 1 2 1 Then (s , s ) is a Nash equilibrium. 1 2

Proof
For all 1 1 we have 1 (1 , s ) 2 =
sS1

p(s)1 (s1 , s ) 2 p(s)1 (s , s ) 1 2

sS1

= 1 (s , s ) . 1 2 For all 2 2 we have 2 (s , 2 ) 1 =

sS2

q(s)2 (s , s2 ) 1 q(s)1 (s , s ) 1 2
sS2

= 2 (s , s ) . 1 2 Hence (s , s ) is a Nash equilibrium. 1 2

Example 4.24
Consider again the game from Example 4.16 L 1, 3 4, 0 2, 5 P2 M 4, 2 0, 3 3, 4 R 2, 2 4, 1 5, 6

P1

U C D

Payos corresponding to a pure strategy that is a best response to one of the opponents pure strategies are underlined. Two underlinings coincide in the entry (5, 6) corresponding to the strategy pair (D, R). The coincidence of underlinings means that D is a best response to R and vice versa (i.e., the pair of pure strategies (D, R) is a Nash equilibrium).

Exercise 4.5
Find the pure strategy Nash equilibria for the following game.