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Almost essential
Game Theory: Strategy and Equilibrium
GAMES: MIXED
STRATEGIES
MICROECONOMICS
Principles and Analysis
Frank Cowell
The problem
An introduction
to the issues
Mixed strategies
Applications
“Discoordination”
Discoordination
This game may seem no more than a
frustrating chase round the payoff
table. The two players’ interests are If a plays [–] then b’s best
always opposed (unlike Chicken or the response is [+]
Battle of the Sexes). But it is an
elementary representation of class of If b plays [+] then a’s best
important economic models. An response is [+]
example is the tax-audit game where
Player 1 is the tax authority (“audit”, If a plays [+] then b’s best
“no-audit”) and Player 2 is the response is [–]
[+]
potentially cheating taxpayer (“cheat”,
3,0 1,2
Player a
“no-cheat”). More on this later. If b plays [–] then a’s best
response is [–]
Apparently, no Nash
[–]
equilibrium!
0,3 2,1
[+] [–]
Player b
Again there’s more to the Nash-equilibrium story here
(to be continued)
July 2017 Frank Cowell: Mixed Strategy Games 7
Overview
Games:
Equilibrium
The problem
Extending the
strategy concept
Mixed strategies
Applications
L R
Probability of playing R
(0,1)
(1,0) pL
pL + pM + pR = 1
(0,1,0)
0
(1,0,0)
pL
July 2017 Frank Cowell: Mixed Strategy Games 15
Strategy space again
Allowing for the possibility of “mixing”
Player’s strategy space consists of a pair:
• a collection of pure strategies (as before)
• a collection of probabilities
Of course this applies to each of the players in the game
How does this fit into the structure of the game?
Two main issues:
• modelling of payoffs
• modelling and interpretation of probabilities
The problem
An example where only
a mixed strategy can
work
Mixed strategies
[1t]y F, ty + F c y, 0
ty + F c > 0
[1 t]y > [1t]y F
[1 t]y, ty c [1t]y, ty
ty c > ty
y > [1t] y
[Audit] [Not audit]
Tax Authority No equilibrium in
pure strategies
mixed
strategies
pa = 1 if pb < p*b
pa = 0 if pb > p*b
p*b•
*a *b
• (p ,p )
pb = 0 if pa < p*a
pb = 1 if pa > p*a
• *a pa
0
p 1
The problem
Mixed strategy or
correlated
strategy?
Mixed strategies
2,2 1,3
Player a
[–]
3,1 0,0
Two NE’s in pure strategies
ua
0 1 2 3