Solutions to Chapter 4 Exercises SOLVED EXERCISES

S1. False. A dominant strategy yields you the highest payoff available to you against each of your

opponents strategies. Playing a dominant strategy does not guarantee that you end up with the highest of all possible payoffs. In the prisoners dilemma game, both players have dominant strategies, but neither gets the highest possible payoff in the e uilibrium of the game.

S!.

"a#

For $ow, Up strictly dominates Down, so Down may be eliminated. For %olumn, Right

strictly dominates Left, so Left may be eliminated. &hese actions leave the pure'strategy (ash e uilibrium "Up, Right#. "b# $ow has no dominant strategy, but Right dominates Left for %olumn "who prefers small

numbers, this being a )ero'sum game#. After eliminating Left for %olumn, Up dominates Down for $ow, so Down is eliminated, leaving the pure'strategy (ash e uilibrium " Up, Right#. "c# &here are no dominated strategies for $ow. For %olumn, Left dominates Middle and

Right. &hus these two strategies may be eliminated, leaving only Left. *ith only Left remaining, for $ow, Straight dominates both Up and Down, so they are eliminated, ma+ing the pure'strategy (ash e uilibrium "Straight, Left#. "d# &he game is solved using iterated dominance. %olumn has no dominated strategies. For

$ow, Up dominates Down, so Down may be eliminated. &hen East dominates North, so it is eliminated. &hen Up dominates Low, so it is eliminated. &hen East dominates West, so it is eliminated. &hen Up dominates High, so it is eliminated, leaving only Up. *ith only Up remaining, East dominates South, giving the pure'strategy (ash e uilibrium "Up, East#.

S,.

"a#

-y .inima/, the minima for $ows strategies are , for Up and 1 for Down. $ow wants

to receive the ma/imum of the minima, so $ow chooses Up. &he minima for %olumns strategies are 0! for Left and 01 for Right. %olumn wants to receive the ma/imum of the minima, so %olumn chooses Right. Again, the pure'strategy (ash e uilibrium is " Up, Right#.

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"b# "Up, Right#. "c#

.inima/ shows that $ow has minima of 1 and !, with ! for Up being the larger. %olumn

has ma/ima of ! and 1, with ! for Right being the smaller. &hen the pure'strategy (ash e uilibrium is

.inima/ shows that the minima for $ows three strategies are 1, !, and 1, so $ow

chooses !, which is from Straight. %olumn wants to minimi)e the ma/imum, and the ma/ima for %olumns strategies are !, 1, and 4, so %olumn chooses !, which is from Left. &his yields the pure' strategy (ash e uilibrium of "Straight, Left#. "d# .inima/ shows that the minima for $ows strategies are 4, ,, !, and ,. $ow chooses the

ma/imum of the minima, which is 4 from strategy Up. &he ma/ima for %olumns strategies are 5, 3, 4, and 6. %olumn chooses the minimum of the ma/ima, which is 4 from strategy East, so the pure'strategy (ash e uilibrium is "Up, East#.

S1.

"a#

Down is dominant for $ow and Left is dominant for %olumn. 2 uilibrium7 "Down, Left#

with payoffs of "6, 4#. "b# Left#. "c# Middle#. "d# &here are no dominant or dominated strategies. 9se best'response analysis to find the Down is dominant for $ow8 %olumn will then play Middle. 2 uilibrium is "Down, Down and Right are wea+ly dominant for $ow and %olumn, respectively, leading to a

(ash e uilibrium at "Down, Right#. -est'response analysis also shows another (ash e uilibrium at " Up,

e uilibrium at "Up, East# with payoffs of "3, 1#. "&he e uilibrium is not in dominant strategies:another interesting point to convey to students.#

S4.

"a#

(either $ow nor %olumn has a dominant strategy, because neither has one action that is

its best response, irrespective of its opponents action. "b# For %olumn, East dominates South, so South may be eliminated. -ut then for $ow, Fire

dominates Earth, so Earth may be eliminated. ;oing so then allows East to dominate North for %olumn, so North may be eliminated. Finally, for $ow, Water dominates Wind, so Wind may be eliminated. 2limination of dominated strategies reduces the strategic'form game to COLUMN

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East ROW Water Fire !, , 1, 1

West 1, 1 !, !

"c#

&he game is not dominance solvable, because a uni ue solution cannot be attained

through iterated elimination of dominated strategies. See the table in part ( ! for the result of iterated elimination of dominated strategies. "d# &here are two pure'strategy (ash e uilibria, which are " Water, East# and "Fire, West#.

"&here is also a mi/ed'strategy (ash e uilibrium, but that will be addressed in %hapter 3.#

S6.

&he payoff matri/ is below. -est'response analysis shows there are two pure'strategy (ash

e uilibria7 "Help, Not Help# with payoffs "!, ,# to "I, <ou# and "Not Help, Help# with payoffs ",, !#.

"ou Help I Help Not !, ! ,, ! Not !, , =, =

S3.

"a#

-est'response analysis shows that there are two pure'strategy (ash e uilibria7 " Lab, Lab#

and "Theater, Theater#. "b# &he te/tboo+ gives numerous multiple'e uilibria games, so we shall e/amine each. &he

game is not %hic+en, because the pure'strategy (ash e uilibria occur when the players choose the same strategy, whereas in %hic+en, the pure'strategy (ash e uilibria occur when the players choose different strategies. Pure %oordination, Assurance, and -attle of the Se/es have two pure'strategy (ash e uilibria with the players choosing the same strategy. -ut due to the payoffs, only one fits better. In Pure %oordination, the payoffs to both parties are identical, which is different than in this game. In Assurance, although the payoffs are different, both parties clearly desire one pure'strategy (ash e uilibrium over another. &herefore, the most similar multiple'e uilibria game is -attle of the Se/es, because the pure' strategy (ash e uilibria occur when the parties use the same strategy. -ut the parties desire different e uilibria. For e/ample, in this uestion, the Science Faculty clearly wants the Lab more than the Theater,

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but the >umanities Faculty wants the Theater more than the Lab, and both are better off choosing the same thing rather than disagreeing.

S5.

"a#

&he (ash e uilibria are "1, 1#, "!, !#, and ",, ,#. <ou could argue that "1, 1# is a focal

point, because its the only e uilibrium giving payoffs of 1= to each, and it might be hard to coordinate on one of the other two e uilibria that give payoffs of 14 to each. "b# 2/pected "average# payoff from flipping a "single# coin to decide whether to play ! or ,

is =.!4 !4 ? =.!4 !4 ? =.4 = @ 1!.4. &he average payoff is then higher than would be achieved if "1, 1# were focal and each player got 1=. &he ris+ that the players might do different things is most important if you have only one opportunity to play, because then you get )ero 4=A of the time. Such fears might ma+e the "1, 1# e uilibrium loo+ more attractive.

SB.

"a#

&he payoff tables are7 $ERN#RDO Yes #R%URO Yes No !, !, ! 4, !, ! No !, 4, ! 4, 4, !

C#RLOS7 Yes

C#RLOS7 No Yes No

$ERN#RDO Yes !, !, 4 4, !, 4 No !, 4, 4 =, =, =

#R%URO

"b#

-est'response analysis shows that the three pure'strategy (ash e uilibria occur when two

children say No and one child says Yes. "c# A natural focal point is where Arturo and -ernardo write No and %arlos writes Yes,

because Arturo and -ernardo did not brea+ the lamp. &hey reason that if they both say no, then %arlos is forced to consider between saying Yes and receiving two dollars or saying No and receiving no dollars. &hus, %arlos has an incentive to say Yes, and Arturo and -ernardo will receive a payoff of five dollars.

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S1=.

&here are three tic+et buyers, and each tic+et buyer can do three things7 not purchase a tic+et

"represented as C=#, purchase a C14 tic+et, and purchase a C,= tic+et. &o represent this game, we need three ,'by', tables, where each table represents the strategies of the first two players and one strategy of the third. In the table payoffs, the first number represents Darrys payoff, the second number represents %urlys payoff, and the third number represents .oes payoff. All payoffs are in dollars, with the dollar signs omitted to save space. -est responses are underlined.

MOE C= C= C14 C,= C= =, =, = 14, =, = =, =, =

CURL" C14 =, 14, = =, =, = =, 014, = C,= =, =, = 014, =, = 014, 014, =

L#RR"

MOE C14 C= C14 C,= C= =, =, 14 =, =, = 014, =, =

CURL" C14 =, =, = 04, 04, 04 =, 014, 014 C,= =, 014, = 014, =, 014 014, 014, 014

L#RR"

MOE C,= C= L#RR" C14 C,= C= =, =, = 014, =, = 014, =, 014

CURL" C14 =, 014, = 014, 014, = 014, 014, 014 C,= =, 014, 014 014, 014, 014 0!=, 0!=, 0!=

-est'response analysis shows that there are no pure'strategy (ash e uilibria for when any player spends C,= to purchase a tic+et. &here are si/ pure'strategy (ash e uilibria. &hree occur when two

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purchasers spend nothing, and the other spends C14. &he other three have two players spending C14, and the third spends nothing.

S11.

"a#

&he strategic'form game may be described as a )ero'sum game, but for clarity, we have

included both payments. $RUCE 1 #NNE 1 ! 1, = =, 1 ! =, 1 1, =

"b# e uilibrium.

-est'response analysis shows that no combination of actions is a pure'strategy (ash

S1!.

"a#

*ith only two men, two brunettes, and one blonde, the payoffs are as follows7 "oun& Man ' pproa!h blonde "oun& Man ( pproa!h blonde pproa!h brunette =, = 4, 1= pproa!h brunette 1=, 4 4, 4

&here are two (ash e uilibria in which one young man approaches the blonde and one the brunette7 "Approach blonde, Approach brunette# and "Approach brunette, Approach blonde# with payoffs "1=, 4# and "4, 1=#. "b# For three young men with three brunettes and one blonde, the payoff table is below. "oun& Man ) pproa!h blonde "oun& Man ' pproa!h blonde pproa!h brunette pproa!h brunette "oun& Man ' pproa!h blonde pproa!h brunette

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"oun& Man (

pproa!h blonde pproa!h brunette

=, =, = 4, =, =

=, 4, = 4, 4, 1=

"oun& Man (

pproa!h blonde pproa!h brunette

=, =, 4 4, 1=, 4

1=, 4, 4 4, 4, 4

&his time there are three (ash e uilibria. 2ach has the same characteristics7 one young man approaches the blonde, and the other two approach brunettes. &he young man approaching the blonde gets a payoff of 1=8 the other two get payoffs of 4. "c# *ith four young men, four brunettes, and one blonde, there will be four (ash e uilibria.

In each e uilibrium, one of the young men approaches the blonde "and gets a payoff of 1=#, and the other three approach brunettes "and get payoffs of 4 each#. "d# For n young men, with n brunettes and 1 blonde, there will be n (ash e uilibria. Det " be

the number of other men approaching the blonde. If you are one of the young men and " @ =, you get a payoff of 1= from approaching the blonde and a payoff of 4 from approaching a brunette. For any other "# you get = from approaching the blonde and 4 from approaching a brunette. &herefore, if any one of the n young men approaches the blonde and the rest approach brunettes, everyones choice is optimal, given the choices of the others. All such strategy configurations are (ash e uilibria. In each e uilibrium, one young man approaches the blonde "payoff 1=#, and the rest each approach a brunette "payoff 4#. &he outcome in which all of the men approach brunettes cannot be a (ash e uilibrium. It yields payoffs of 4 to each young man, but each could have gotten 1= if he had chosen to approach the blonde instead.

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