GTAP Sessions 11-15 Mixed Strategy

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GAME THEORY & APPLICATIONS

J. Ajith Kumar, TAPMI, Manipal
Mixed Strategy
Prof. J. Ajith Kumar, TAPMI, Manipal
GAME THEORY NOTES
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OPENING EXERCISE
You are asked to make an investment in ONE of two
ventures, given the following information:
qIf you invest in Venture A, there is a 5% chance of
making a profit of Rs. 80 crores, and a 95% chance
of no profit at all.
qBut, if you invest in Venture B, you are fully assured

of a profit of Rs. 8 crores.
Which venture will you invest in A or B?
(there is no correct answer).
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OPENING EXERCISE
You have Rs. 100 with you, with which you have to
purchase either of two lotteries.
Lottery A: Is for Rs. 10 crore, and 250,000 people will

purchase it.
Lottery B: Is for Rs. 2 crore, and 25,000 people will
purchase it.
The only winner of each lottery gets the full prize but a
loser loses even the Rs. 100. Which lottery will you
take?
There is no one correct answer
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MATCHING PENNIES GAME (MULTIPLE ROUNDS)
Each player chooses Red or Black. If players choose the same

colour, Player 1 wins. If players choose different colours, Player 2
wins.
We will do 30 rounds. In each round, each player must guess
what the other player will choose, and then make his own
choice.
Players will be given a few seconds between rounds to think
over their choice of the next round.
After each round, players get to see what their respective
choices were and who won the round.
At the end, each player will describe his thinking to all us.
What is the result?
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UNDERSTANDING MIXED STRATEGY

MANOJ
Beach
Park
Alok and Manoj are two elderly

Park
Beach
citizens who stay in two different
100, 80
0, 0
localities of the same town. Every ALOK
evening both of them visit either
0, 0
60, 120
the park or the beach (there is only
one of each in the town).
If they both visit the same place then they enjoy each
others company and that leads to positive payoffs for
both. If they visit different places, neither benefits.
The payoffs are given here.
Does either player have a dominant strategy?
What are the PSNE? Are there any MSNE in this game?
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A mixed strategy of a given player is a probability

distribution that the player assigns to his set of pure
strategies.
e.g. in this game, Aalok = (Park, Beach)
The pure strategies that Alok can choose are Park, Beach.
However, Alok can mix the two and choose to go to
the Park with probability p, and to the Beach with
probability 1p.
If p = 0.1, then Alok = (0.1, 0.9) is a mixed strategy
played by Alok.
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Similarly, Manoj can decide to mix his strategies and

play Park and Beach with probabilities q and 1q
respectively.
If q = 0.2, then Manoj = (0.2, 0.8) is a mixed strategy
played by Manoj.
Since both p and q can take infinite values between 0
and 1, Alok and Manoj can choose between infinite
possible strategies.
A pure strategy is a special case of mixed strategy,
when p (or q) is 0 or 1.
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MIXED STRATEGY PROFILES
Beach
ALOK
Alok
Park
We can assign to each mixed strategy an additional row

or an additional column, depending upon the player
that is playing it.
MANOJ
Park
Manoj
Beach
100, 80
?, ?
0, 0
?, ?
?, ?
?, ?
0, 0
?, ?
60, 120
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THE MEANING OF MIXED STRATEGY

What does it mean to say Alok will mix strategies and play (0.1, 0.9)?
Simple interpretation 1: Randomization
q From Aloks viewpoint: On 10% of the days, Alok will go to the Park, and on
the remaining 90%, he will go to the Beach. Thus, when the game is
played over a large number of rounds, the mixing of the two pure
strategies happens in the proportions indicated by the mixed strategies.
q From Manojs viewpoint: Manojs perception of how likely Alok is, to
choose either place. In this example, Manoj might think there is a 10%
chance that Alok will go to the Park and a 90% chance that he will go to the
beach. If so, Manoj will say that Alok is playing the mixed strategy - (0.1,
0.9).
q However, on any given day, Alok will either go to the Park or the Beach.
Thus, whenever Alok plays the game, he actually plays only a pure strategy.
Manoj also knows this.
This means that the mixed strategy is an abstraction and is never
actually played by the player in any particular round of the game.
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THE MEANING OF MIXED STRATEGY

What does it mean to say Alok will mix strategies and play (0.1, 0.9)?
Simple interpretation 2: Population preference
q Alok and Manoj are not particular individuals but represent two different
populations. In this example chosen, a member of each type gets value
only in interaction with a member of the other type and no value
otherwise. Further, each population has its preferred distribution.
q Thus, Alok plays (0.1, 0.9) means that when asked what they prefer, 10%
members of the Alok population will choose Park and 90% will choose
Beach. Thus the mixed strategy represents the preference distribution of
the population.
In any given game, these are two useful ways of interpreting

to create meanings as suitable to the context of that game.
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MIXED STRATEGY & EXPECTED PAYOFFS
If Alok = (0.1, 0.9) and Manoj = (0.2, 0.8) then what are their respective payoffs?
Park
Beach
Park
100, 80
0, 0
Beach
MANOJ
We answer this by computing expected values that

are probability-weighted averages of the payoffs
they get by playing their respective pure strategies
0, 0
60, 120
ALOK
Payoffs for Alok
If Alok plays the pure strategy Park,

given that Manoj is playing (0.2, 0.8),
Payoffs for Manoj (do this yourself)
Aloks payoffs will be:
UAlok(Park ,Manoj) = 100*0.2 + 0*0.8 = 20
UManoj(Alok , Manoj) = 88
Likewise, if Alok plays the pure strategy
Beach:
UAlok(Beach,Manoj) = 0*0.2 + 60*0.8 = 48
Now, Alok himself is playing a mixed
strategy (0.1, 0.9). Hence,
UAlok(Alok,Manoj)=20*0.1 + 48*0.9 = 45.2
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Hence, the payoffs are: (45.3, 88)
Note: we work with

absolute values here, not
ordinals.
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MIXED STRATEGY & EXPECTED PAYOFFS

We can now generalize the calculation of expected payoffs
Park (q)
Beach (1-q)
100, 80
0, 0
ALOK
0, 0
60, 120
Pure strategy payoff matrix
Park (q)
Beach (1-q)
Park (p)
MANOJ
p.q
p.(1-q)
Beach (1-p)
ALOK
Beach (1-p)
Park (p)
MANOJ
(1-p).q
(1-p).(1-q)
Likelihood that a given strategy

profile will be played
U1(1,2) = U1(Park, Park)*p.q + U1(Park, Beach)*p.(1q) +

U1(Beach, Park)*(1p).q + U1(Beach, Beach)*(1 p).(1 q)
U2(1,2) = U2(Park, Park)*p.q + U2(Park, Beach)*p.(1q) +
U2(Beach, Park)*(1p).q + U2(Beach, Beach)*(1 p).(1 q)
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MIXED STRATEGY NASH EQUILIBRIUM
Being a rational actor, each player is keen to maximize his own

payoffs.
First, we look for the PSNEs. Are there any?
Yes: (Park, Park) and (Beach, Beach) are both PSNEs. If one player
knows with certainty that the other player is choosing Park, then
he will also choose Park. Likewise, for Beach.
However, here the players cannot know with certainty what the
other player might do.
They can at best make intelligent
guesses about the likelihoods that other players will attach to
their choices. In response, they can also play their choices with
probabilities, i.e. they can each randomize.
Since players can randomize, are there MSNEs also? Are there
mixed strategies for each player, that are best responses to each
other? If yes, how do we find them?
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UAlok(Beach,Manoj) = 0*0.2 + 60*(1q) = 6060q
UAlok
100
ALOK
UAlok(Park ,Manoj) = 100*q + 0*(1q) = 100q
Beach (1-q)
Park (p)
The payoffs to Alok if he chooses Park / Beach:
Park (q)
100, 80
0, 0
Beach (1-p)
Let Alok be (p, 1p) and Manoj be (q, 1q), then
MANOJ
0, 0
60, 120
Park
What do the utility functions tell us?
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If Manoj is playing q < 3/8, then Alok will

receive a higher payoff by playing Beach. If
q > 3/8, then playing Park gives a higher
payoff. But if Manoj plays q = 3/8, then Alok
gets the same payoffs for Beach and Park.
Beach
37.5
At q = 3/8, Alok becomes

indifferent between his choices.
0
3/8
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UManoj
120
Beach
Beach (1-q)
Park (p)
UManok(Alok, Beach) = 0*p + 120*(1p) = 120120p
ALOK
UManoj(Alok, Park) = 80*p + 0*(1p) = 80p
Park (q)
100, 80
0, 0
Beach (1-p)
Now, computing utilities for Manoj if Alok plays (p, 1p)
MANOJ
0, 0
60, 120
If Alok is playing p < 3/5, then Manoj

will receive a higher payoff by playing
Beach. If p > 3/5, then playing Park
gives a higher payoff. But if Alok plays
p = 3/5, then Manoj gets the same
payoffs for Beach and Park.
80
Park
48
At p = 3/5, Manoj becomes

indifferent between his choices.
0
3/5
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From the utility functions, we can extract the best response

functions.
p = BAlok(q)
q = BManoj(p)
p=1
park
3/5
p=0
beach
3/8
q=0
beach
Best response of Alok to Manoj
q=1
park
Best response of Manoj to Alok
We can get the Nash equilibrium by overlapping the best response

functions.
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Overlapping the best response functions:
p=1
park
p = BAlok(q)
3/5
p=0
beachq=0
beach
The best response functions

intersect at: p = 3/5, q = 3/8
q = BManoj(p)
3/8
q=1
park
This
means
that
the
equilibrium strategies of Alok
and Manoj are:
*Alok = (3/5, 2/5) and
*Manoj
=
(3/8,
5/8)
respectively.
Hence, the Mixed Strategy Nash Equilibrium =

{ (3/5, 2/5), (3/8, 5/8) }
Can also be expressed as = { (0.6, 0.4), (0.375, 0.625) }
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Making sense of the MSNE
The MSNE is: { (0.6, 0.4), (0.375, 0.625) }. What does it

tell us?
The likelihood is 60% that Alok will go to the Park and
40%, the Beach. The corresponding likelihoods for
Manoj are 37.5% and 62.5%.
If the other person sticks to his strategy, then neither
has an incentive to change his strategy. For each
person, his strategy is now his best response to the
others strategy.
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Making sense of the MSNE
Review Questions
Now suppose, Alok increases his likelihood of going to
the Park to 75%. Then how should Manoj respond?
What is his best response?
As per our model, Manoj should respond by only going to the
Park: (1, 0).
For any likelihood of Aloks going to Park that is < 60%, Manojs
payoff is always higher in going to the Beach than to the Park.
If Alok plays (0.55, 0.45), what is Manojs best response?

If Manoj plays (0.45, 0.55), what is Aloks best response?
If Manoj plays (0.35, 0.65), what is Aloks best response?
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Opponents Indifference Property
The strategy chosen by each player in a MSNE makes the

other player indifferent between his choices (this can be
proved as a general result.)
e.g. when Alok plays (0.6, 0.4), then Manoj gets the
same payoff regardless of what strategy he plays.
whether he plays (0.1, 0.9), (0.375, 0.625), (0.8, 0.2) or
anything else he gets a payoff of exactly 48.
Question: If that is true, then why should Manoj play
(0.375, 0.625), his equilibrium strategy?
Answer: If Manoj plays anything other than (0.375, 0.625), then
Alok will respond by moving away from (0.6, 0.4) towards one of
the pure strategies That will cause a disequilibrium and Manoj
will then have to respond by changing his strategy and so on
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Aloks equilibrium strategy (p*, 1p*) is such that it

makes Manoj indifferent between his pure strategies.
80.p* + 0.(1p*) = 0.p* + 120.(1p*)
200.p* = 120; p* = 0.6
Hence, Aloks equilibrium strategy: (0.6, 0.4).
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Manojs equilibrium strategy (q*, 1q*) is such that it

makes Alok indifferent between his pure strategies.
100.q* + 0.(1q*) = 0.q* + 60.(1q*)
160.q* = 60; q* = 0.375
Hence, Manojs equilibrium strategy: (0.375, 0.625).
By this route, we dont need to determine the best

response functions etc.!
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LESSON: Each players strategy in a MNSE is such
that it makes the other player indifferent between
her pure strategies that she plays with a positive
probability.
In a MSNE, given the other players strategies, the

focal players expected payoff is,
q equal for all pure strategies to which she assigns a
positive probability,
q which is at least as good as those for pure
strategies to which she assigns a zero probability.
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Helps us find the MSNE in a game.
Helps us test whether a given profile is a MNSE.
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PLAYER 2
L
1, 2
3, 3
1, 1
2, 1
0, 1
2, 0
[ (3/4, 0, 1/4), (0, 1/3, 2/3) ]
PLAYER 1
TESTING FOR MSNE
0, 4
5, 1
0, 7
U1(T ,2) = (0)*1 + (1/3)*3 + (2/3)*1 = 5/3

U1(M ,2) = (0)*2 + (1/3)*0 + (2/3)*2 = 4/3
U1(B,2) = (0)*0 + (1/3)*5 + (2/3)*0 = 5/3
U2(1, L) = (3/4)*2 + (0)*1 + (1/4)*4 = 5/2
U2(1, C) = (3/4)*3 + (0)*1 + (1/4)*1 = 5/2
U2(1, R) = (3/4)*1 + (0)*0 + (1/4)*7 = 5/2
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TESTING FOR MSNE

[ (3/4, 0, 1/4), (0, 1/3, 2/3) ]
Player 1s expected payoffs, given Player 2 is playing (0, 1/3, 2/3):

are the same (i.e. 5/3) for the two pure strategies, T and B, to
which she has assigned positive probability,
which are at least as good as that for M (i.e. 4/3), to which she
has assigned zero probability.
Player 2s expected payoffs, given Player 1 is playing (3/4, 0, 1/4):
are the same (i.e. 5/2) for the two pure strategies, C and R, to
which she has assigned positive probability,
which are at least as good as that for L (i.e. 5/2), to which she
has assigned zero probability.
Hence, the given profile is a MSNE

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TESTING FOR MSNE

L
1, 2
3, 3
1, 1
2, 1
0, 1
2, 0
PLAYER 2
0, 4
5, 1
0, 7
PLAYER 1
[ (1/3, 1/3, 1/3), (1/4, 1/2, 1/4) ]
U1(T ,2) = (1/4)*1 + (1/2)*3 + (1/4)*1 = 2

U1(M ,2) = (1/4)*2 + (1/2)*0 + (1/4)*2 = 1
U1(B,2) = (1/4)*0 + (1/2)*5 + (1/4)*0 = 5/2
U2(1, L) = (1/3)*2 + (1/3)*1 + (1/3)*4 = 7/3
U2(1, C) = (1/3)*3 + (1/3)*1 + (1/3)*1 = 5/3
U2(1, R) = (1/3)*1 + (1/3)*0 + (1/3)*7 = 8/3
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TESTING FOR MSNE

[ (1/3, 1/3, 1/3), (1/4, 1/2, 1/4) ]
Player 1s expected payoffs, given Player 2 is playing (1/4, 1/2, 1/4):

are different across the three pure strategies, T, M and B, to
which she has assigned positive probabilities,
Player 2s expected payoffs, given Player 1 is playing (1/3, 1/3, 1/3):
are also different across the three pure strategies, L, C and R, to
which she has assigned positive probabilities,
Hence, the given profile is not a MSNE
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FINDING THE MSNE
The method of using best responses is easy to use in 2player 2-action games, but becomes difficult to apply
when the number of actions is more than two.
In 2-player games with more than 2 actions we can use a
trail and error method, in conjunction with the
Opponents Indifference Property to find the MSNE.
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FINDING THE MSNE

Find all the NE in this game:
B
4, 2
0, 0
0, 1
PLAYER 1
PLAYER 2
0, 0
2, 4
1, 3
Enumerate all possible profile types, by varying each

players playing his pure strategies with a positive or zero
probability.
A1: {B, S} and A2: {B, S, X}
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FINDING THE MSNE

Both players assign positive probability to
only one of their actions.
(1, 0), (1, 0, 0)
(0, 1), (1, 0, 0)
(1, 0), (0, 1, 0)
(0, 1), (0, 1, 0)
(1, 0), (0, 0, 1)
(0, 1), (0, 0, 1)
Player 1 assigns positive probability to only one action; Player 2 to

more than one action.
(1, 0), (q, 0, 1q)
(0, 1), (q, 0, 1q)
(1, 0), (0, q, 1q)
(0, 1), (0, q, 1q)
(1, 0), (q, 1q, 0)
(0, 1), (q, 1q, 0)
(1, 0), (q1, q2, 1q1q2)
(0, 1), (q1, q2, 1q1q2)
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FINDING THE MSNE

(p, 1p ), (1, 0, 0)
(p, 1p ), (0, 1, 0)
(p, 1p ), (0, 0, 1)
Both
players
assign
positive probability to
more than one action.
Player
2
assigns
positive
probability to only one action;
Player 1 to more than one action.
(p, 1p ), (q, 0, 1q)

(p, 1p ), (0, q, 1q)
(p, 1p ), (q, 1q, 0)
(p, 1p ), (q1, q2, 1q1q2)
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FINDING THE MSNE

B
4, 2
0, 0
0, 1
PLAYER 1
PLAYER 2
0, 0
2, 4
1, 3
This game has three MSNEs, of which two are PSNEs and
one is not:
[ (1, 0), (1, 0, 0) ],
[ (0, 1), (0, 1, 0) ],
[ (3/4, 1/4), (1/5, 0, 4/5) ]
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NASH EQUILIBRIUM PURE & OTHERWISE

NASH EQUILIBRIUM
Those that are PSNE

(made up of only pure
strategies)
Those that are not PSNE

(at least one player is not
playing a pure strategy)
Remember: a pure strategy is a special case of a mixed strategy.
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NASH EXISTENCE THEOREM

Every finite game has at least one equilibrium.
Finite game: has a finite number of players, each with a

finite number of pure strategies (actions).
Is it possible that in a game that is not finite, there is
no NE at all?
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EXERCISE
Find all the NEs in this game.
Park (q)
Beach (1-q)
Park (p)
40, 40
10, 70
Beach (1-p)
ALOK
MANOJ
70, 10
20, 20
q We only have one NE that is a PSNE [(0,1), (0,1)].

q We cannot find any that is not a PSNE.
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EXERCISE
1, 1
1, 1
1, 1
Left (1q)
Right (p)
1, 1
Right (q)
1, 1
1, 1
Left (1p)
Black (1q)
NIKHIL
Red (q)
Red (p)
MANISH
Black (1p)
KAVISH
SAILESH
1, 1
1, 1
q Only NE is: [(0.5, 0.5), (0.5, 0.5)} there is no PSNE.

q Recollect the results we got in the class??
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EXERCISE
C (q)
M (1q)
C (p)
30, 20
0, 0
M (1p)
HUSBAND
WIFE
0, 0
20, 30
q Three NEs:
[(1, 0), (1, 0)], [(0, 1), (0, 1)], [(0.6, 0.4), (0.4, 0.6)].
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GENERAL REALIZATIONS
q A PSNE is a degenerate case of a MSNE, where in the player

chooses one action with probability 1 and all others with
probability 0.
q Sometimes, a finite game can have more than one equilibrium.
q We can have three types of games:
q Games in which all equilibria are only PSNE.
q Games in which no equilibrium is a PSNE (e.g. Matching
Pennies),
q Games in which some equilibria are PSNE and some are
not (e.g. Battle of the Sexes).
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EXERCISE SET C
q Problem 6: Hawk Dove Game.
q Problem 9: Swimming with sharks.
q Problem 10: Testing for MSNE.
q Problem 13: Defending Territory.
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Do people actually
play mixed
strategies as
predicted by Game
Theory?
Palacious-Huerta, I. (2003),
Professionals
Play
Minimax,
Review
of
Economic Studies, Vol. 70,
pg. 395-415.
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Do people actually play mixed strategies as

predicted by Game Theory?
q Analyzed data from 1417 Penalty kicks from FIFA games: Spain,
England, Italy.
The payoff (success) matrix.
q Given this payoff matrix, identify the kickers and goalies

probabilities of going left and right, in a Nash Equilibrium.
Is this Nash Equilibrium actually observed in practice?
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Do people actually play mixed strategies as

predicted by Game Theory?
This was observed in the data!
qPeople dont use payoff matrices to calculate

equilibrium values, before deciding how to act.
qYet, in this study, Kicker and Goalie aggregated
behaviour over time is consistent with the Nash
Equilibrium prediction!
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Does randomization happen in the business

and administration?
qPolice checking of drunken driving and motorists

strategies.
qTax raids on companies & companies strategies.
qVVIP security.
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Exercise: Swimming with Sharks
Friend
Yes No
Alternatives: Yes (swim on the first day),

No (dont swim on first day)
You
No Yes
Problem 9 of Exercise Set C
What does represent?

is players perceived likelihood of sharks
existing in the water.
What does c represent?
c is the ratio of the magnitude of displeasure experienced in a shark attack,
to the magnitude of pleasure experienced in swimming without being
attacked.
TRY THIS OUT ON YOUR OWN. AFTER YOU HAVE ATTEMPTED IT
THOROUGHLY, COMPARE YOUR WORK WITH MY EFFORTS HERE.
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Possible situations that can be modeled by this type of game
q You are considering watching the first day first show of a new movie (there
is a certain thrill in doing so and ideally, you wouldnt want to lose that). If
you find the movie good, you will surely watch it a second time. But you
also realize that there is a probability the movie will not be good and
associate a pain c with a bad experience. Will you watch it first and then
tell your friend, or wait for friends to watch it and then tell you?
q Two firms from the same country are considering investing in a new
country, about whose market there is some uncertainty. Both can benefit
from investing in the first year itself, however there is a possibility of things
going wrong. Thus each might benefit by waiting for the other firm to
invest, watching the result, and then deciding whether to invest in the
second year or not.
q Any situation where being the first mover can sometimes be better and
sometimes worse than being a late mover.
Other situations where this can be used?
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CREATIVE EXERCISE
q A project of GTAPers of 2013-15 batch.
q demonstrate that Game Theory is useful to

management in organizations.
q In-class presentation & Poster exhibition.
q groups of 4 we will have 15 posters from each
section.
q Form your groups & enter into Google Spreadsheet
(Monday, Oct 20th, 11:59 pm). No change after that.
q Two PLs in each section to plan & execute the
whole project.
MORE INSTRUCTIONS BY OCT 23RD
GAME THEORY NOTES
47
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Iterated Elimination of Strictly Dominated

Strategies
A method to narrow down options while searching for

Nash Equilibria.
qBuilds on the idea that a Nash Equilibrium cannot
have a strategy (action) that is strictly dominated.
(revision: what is a strictly dominated strategy?)
GAME THEORY NOTES
48
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Iterated Elimination of Strictly Dominated Strategies
PRISONER B
Quiet
Admit
Quiet
1, 1
10, 0
Admit
Instead of examining each action profile and testing to

see if it is a Nash Equilibrium, we can instead proceed
with reasoning as follows:
PRISONER A
Consider the Prisoners Dilemma game
0, 10
5, 5
Player 1 thinks: Is there any strategy that Player 2 will surely not play?
He examines Player 2s payoffs and finds that Player 2s strategy Quiet is
strictly dominated by his strategy Admit. Hence, Player 1 concludes that
Player 2 will never play Quiet. Which means that Player 2 can play only
Admit.
If that is so, Player 1 asks what should my response be?
Obviously, Admit since, for him too, Quiet is strictly dominated by Admit.
He then asks: Player 2 will think about what I will do. How will he think?. He
realizes that Player 2 will reason about him (Player 1) similar to the way he
reasoned about Player 2 and conclude that he (Player 1) would play Admit.
GAME THEORY NOTES
49
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More generally speaking, each player can think over
q What is the best strategy for me / others as well as what is never a best
strategy for myself / others?
q What the other player(s) think(s) about what I think as the best strategy
for me / themselves as well as what is never a best strategy for me /
themselves?
q What the other player(s) think(s) about what I think about their thinking
about the best strategy for me / themselves as well as what is never a
best strategy for me / themselves? on so on
It becomes clear from this way of thinking that each player can
eliminate all strategies of himself / others that can never be a best
strategy since that strategy(-ies) will never be played.
GAME THEORY NOTES
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2, 0
2, 1
0, 0
1, 1
1, 1
5, 0
0, 1
4, 2
0, 1
2, 0
2, 1
1, 1
0, 1
1. R is strictly dominated by C
Eliminate R and create a smaller game. In the
smaller game, we find,
3. L is strictly dominated by C
Eliminate L and create a smaller
game. In the smaller game,
1, 1
4, 2
2, 0
2, 1
2, 1
4. U is strictly
dominated by D
Eliminate U.
C
0, 1
4, 2
GAME THEORY NOTES
Consider this game.

Identify all the strictly dominated strategies
and eliminate them one by one.
2. M is strictly dominated by U
Eliminate M and create a smaller
game. In the smaller game,
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4, 2
4, 2
51
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2, 0
2, 1
0, 0
1, 1
1, 1
5, 0
0, 1
4, 2
0, 1
By iteration, the procedure led us to a

single strategy profile. Hence, we infer
that this is the unique Nash Equilibrium of
the game.
If there were other Nash Equilibria, the game would not terminate this way,
in a single strategy profile.
GAME THEORY NOTES
52
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A different example
C
3, 1
0, 1
0, 0
1, 1
1, 1
5, 0
0, 1
4, 1
0, 0
3, 1
0, 1
2. M is strictly dominated by (, 0, ) and others

Eliminate M.
1, 1
1, 1
Now we can find no more pure / mixed strategies that

dominate an existing pure strategy. Terminate.
By trial and error, we find that if Player 1 plays

(, 0, ) or any (p, 0, 1p) such that 1/3 < p < 3/4,
then this mixed strategy strictly dominates M.
Why?
0, 1
But now there is no strategy that is strictly

dominated by another pure strategy. Can we find
a mixed strategy that strictly dominates a pure
strategy?
3, 1
0, 1
1. R is strictly dominated by both C and L

Eliminate R.
0, 1
4, 1
4, 1
GAME THEORY NOTES
This game has infinite Nash

Equilibria. Find them!
53
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q Helps us narrow down a complex game to a simpler one. Hence can be

used as a pre-processing step, before using another technique to find Nash
Equilibria.
q The process preserves the games Nash Equilibria, since in every iteration
we eliminate only those strategies that can never be best responses.
q Dominance Solvability: Games that are fully solvable using this technique
are said to be dominance solvable. In such a game, we terminate at a
unique strategy profile after the iterative elimination procedure. Only
some games are dominance solvable.
q Order of Removal: If there are multiple strictly dominated strategies, then
does the order of their removal matter to the solution? No. Verify this
by using a different order for the first game demonstrated.
q Weakly dominated strategies: Will this procedure work if we eliminate
weakly dominated strategies also? IT MAY OR MAY NOT. A Nash
Equilibrium can consist of weakly dominated strategies!.... At least one
equilibrium will be preserved but the order of removal can matter.
GAME THEORY NOTES
54
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Experiment done in classroom.

You are asked to make an investment
in ONE of two ventures, given the
following information:
You have Rs. 100 with you, with which you

have to purchase either of two lotteries.
q If you invest in Venture A, there

is a 5% chance of making a
profit of Rs. 80 crores, and a
95% chance of no profit at all.
q But, if you invest in Venture B,
you are fully assured of a profit
of Rs. 8 crores.
Lottery A: Is for Rs. 10 crore, and 250,000

people will purchase it.
Which venture should you invest in

A or B? There is no one correct
answer. Both answers can be correct,
and we are looking at how individuals
make choices.
Lottery B: Is for Rs. 2 crore, and 25,000

people will purchase it.
The only winner of each lottery gets the full
prize but a loser loses even the Rs. 100.
Which lottery will you take?
There is no one correct answer. Each
person can have different reasons for his
choice.
What is your answer?
Think and answer Which venture

will you invest in? Why?
GAME THEORY NOTES
55
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Venture
B
A
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Experiment done in the classroom
Lottery
In solving for mixed strategies, we used the concept of
expected value. But do people actually make their
preference on the basis of expected value?
GAME THEORY NOTES
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Expected Value Calculation

Are peoples preferences consistent with EV?
Are peoples preferences consistent across experiments?
Investment
For the decision to invest in Venture A
EV(A) = 0.95*0 + 0.05*80 = 4
For the decision to invest in Venture B
EV(B) = 1.00*8 = 8
Lottery
For the decision to purchase lottery A
EV(A) = 0.000004*100000000 + 0.999996*(-100) = 400 99.9996
EV(A) = ~300.
For the decision to purchase lottery B
EV(B) = 0.00004*20000000 + 0.99996*(-100) = 800 99.996
EV(B) = ~700.
GAME THEORY NOTES
57
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How does Expected Value Relate to Preference?

In both experiments, EV(B) > EV(A).
Investment
B
A
Investment
B
A
If people are consistent with their choices, those who chose

Venture A should choose Lottery A and those who chose Venture
B should choose Lottery B.
A
B
Lottery
8, 300 8, 700
A
B
Lottery
No. of people who played the

different choice combinations
4, 300 4, 700
GAME THEORY NOTES
The payoffs associated with

the different choice
combinations
58
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GTAP Sessions 11-15 Mixed Strategy

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GAME THEORY & APPLICATIONS

Prof. J. Ajith Kumar, TAPMI, Manipal

GAME THEORY NOTES

qBut, if you invest in Venture B, you are fully assured

Prof. J. Ajith Kumar, TAPMI, Manipal

GAME THEORY NOTES

Lottery A: Is for Rs. 10 crore, and 250,000 people will

GAME THEORY NOTES

MATCHING PENNIES GAME (MULTIPLE ROUNDS)

Each player chooses Red or Black. If players choose the same

GAME THEORY NOTES

UNDERSTANDING MIXED STRATEGY

Alok and Manoj are two elderly

GAME THEORY NOTES

UNDERSTANDING MIXED STRATEGY

A mixed strategy of a given player is a probability

GAME THEORY NOTES

UNDERSTANDING MIXED STRATEGY

Similarly, Manoj can decide to mix his strategies and

GAME THEORY NOTES

MIXED STRATEGY PROFILES

We can assign to each mixed strategy an additional row

Prof. J. Ajith Kumar, TAPMI, Manipal

GAME THEORY NOTES

THE MEANING OF MIXED STRATEGY

GAME THEORY NOTES

THE MEANING OF MIXED STRATEGY

In any given game, these are two useful ways of interpreting

GAME THEORY NOTES

MIXED STRATEGY & EXPECTED PAYOFFS

We answer this by computing expected values that

Payoffs for Alok

If Alok plays the pure strategy Park,

GAME THEORY NOTES

Hence, the payoffs are: (45.3, 88)

Note: we work with

MIXED STRATEGY & EXPECTED PAYOFFS

Pure strategy payoff matrix

Likelihood that a given strategy

U1(1,2) = U1(Park, Park)*p.q + U1(Park, Beach)*p.(1q) +

GAME THEORY NOTES

MIXED STRATEGY NASH EQUILIBRIUM

Being a rational actor, each player is keen to maximize his own

GAME THEORY NOTES

MIXED STRATEGY NASH EQUILIBRIUM

UAlok(Beach,Manoj) = 0*0.2 + 60*(1q) = 6060q

UAlok(Park ,Manoj) = 100*q + 0*(1q) = 100q

The payoffs to Alok if he chooses Park / Beach:

Let Alok be (p, 1p) and Manoj be (q, 1q), then

If Manoj is playing q < 3/8, then Alok will

At q = 3/8, Alok becomes

Prof. J. Ajith Kumar, TAPMI, Manipal

GAME THEORY NOTES

MIXED STRATEGY NASH EQUILIBRIUM

UManok(Alok, Beach) = 0*p + 120*(1p) = 120120p

UManoj(Alok, Park) = 80*p + 0*(1p) = 80p

Now, computing utilities for Manoj if Alok plays (p, 1p)

If Alok is playing p < 3/5, then Manoj

At p = 3/5, Manoj becomes

Prof. J. Ajith Kumar, TAPMI, Manipal

GAME THEORY NOTES

MIXED STRATEGY NASH EQUILIBRIUM

From the utility functions, we can extract the best response

U1(1,2) = U1(Park, Park)p.q + U1(Park, Beach)p.(1q) +

UAlok(Beach,Manoj) = 00.2 + 60(1q) = 6060q

UAlok(Park ,Manoj) = 100q + 0(1q) = 100q

UManok(Alok, Beach) = 0p + 120(1p) = 120120p

UManoj(Alok, Park) = 80p + 0(1p) = 80p

Aloks equilibrium strategy (p, 1p) is such that it

Manojs equilibrium strategy (q, 1q) is such that it

U1(T ,2) = (0)1 + (1/3)3 + (2/3)*1 = 5/3

U1(T ,2) = (1/4)1 + (1/2)3 + (1/4)*1 = 2