Econ 1051: Section 2 Notes

TA: Zhenyu Lai ([email protected]), 2/11/2011

Voting with Tie-Breaking
Nash Equilibrium
Volunteering Time
In Class: Discussion of PS2

1. Problem Set 1, Question 3

Q: The winner is decided by majority voting. In case of a tie, 1s vote breaks the tie.
Voters receive payos of 2,1 and 0 if their 1st, 2nd and 3rd choice win, respectively.
3 voters have the following preferences. Which strategies are strictly or weakly dominated?
1:

2:

3:

A: Make sure you know how to do each of the following steps.

Step 1: Express the game using payo matrices.
Strategies: fa; b; cg
Payos: f(2; 1; 0) ; (0; 2; 1) ; (1; 0; 2)g) (for respective outcomes: fa wins, b wins, c winsg)

1:

a
b
c

a
2; 1; 0
2; 1; 0
2; 1; 0

2:
b
2; 1; 0
0; 2; 1
1; 0; 2

c
2; 1; 0
0; 2; 1
1; 0; 2

1:

a
b
c

3 chooses a

a
2; 1; 0
0; 2; 1
1; 0; 2

2:
b
0; 2; 1
0; 2; 1
0; 2; 1

c
2; 1; 0
0; 2; 1
1; 0; 2

3 chooses b

1:

a
b
c

a
2; 1; 0
0; 2; 1
1; 0; 2

2:
b
2; 1; 0
0; 2; 1
1; 0; 2

c
1; 0; 2
1; 0; 2
1; 0; 2

3 chooses c

Step 2: Delete dominated strategies

Each player considers 9 possible scenarios.
Each player chooses a strategy from among his set of 3 alternative actions.
1 chooses across rows, 2 chooses across columns, 3 chooses between matrices.
Note: No strictly dominated strategies. If both opponents choose the same alternative,
the third player is indierent between his choices since his payo would be the same.
For 1: b and c are weakly dominated (by a).
2: c is weakly dominated (by b).
3: a is weakly dominated (by c).

Q: Remove weakly dominated strategies to consider the reduced game.What outcome is predicted?
Step 1: Express reduced game using a payo matrix
3:
2:

a
b

b
2; 1; 0
0; 2; 1

c
2; 1; 0
2; 1; 0

1 chooses a
Step 2: Delete dominated strategies.
Note: Eectively, we can ignore the rst number in each cell (since 1 always chooses a).
2 compares the second number across rows
3 compares the third number across columns.
This leaves us with (a; b; b) as the only undominated outcome.
Surprisingly, b wins even though b is 1s last choice, voters all have a dierent rst choice,
and 1 has tie-breaking power.
Q: How would your answers change if 3 were indierent between a and b?
Step 1: Observe that c is now weakly dominant for 3 (write payo matrix).
Let u3 (a wins) = u3 (b wins) = x < 2 = u3 (c wins).
Compare the third number across matrices. Observe we can delete the rst two matrices.

1:

a
b
c

a
2; 1; x
2; 1; x
2; 1; x

2:
b
2; 1; x
0; 2; x
1; 0; 2

c
2; 1; x
0; 2; x
1; 0; 2

a
2; 1; x
0; 2; x
1; 0; 2

a
b
c

1:

3 chooses a

2:
b
0; 2; x
0; 2; x
0; 2; x

c
2; 1; x
0; 2; x
1; 0; 2

3 chooses b

1:

a
b
c

a
2; 1; x
0; 2; x
1; 0; 2

2:
b
2; 1; x
0; 2; x
1; 0; 2

c
1; 0; 2
1; 0; 2
1; 0; 2

3 chooses c

Step 2: Iterated deletion of weakly dominated strategies.

2:
1:

a
2; 1; x

b
2; 1; x

3 chooses c
No majority of b or c will form: 1 always votes a, 2 never votes c and 3 never votes b.
Since 1 holds the tie-breaker, the outcome will be a.
Since 1 always votes a, 2 never votes c & 3 never votes b, there will never be a majority of b or c.
Since 1 holds the tie-breaker, the outcome will be a.

2. Comparing Dominant Strategies vs. Best Response

Not all games have dominant strategies. Even if a dominant strategy doesnt exist, we can always
play a best response (given what we think the opponent does).
Dominant strategy:
0

Strategy si is a dominant strategy if ui s0i ; s

ui (si ; s i )

for all si , for all s

In words, a dominant strategy is "i should play this, because I will always be better o
than anything else I could possibly do, no matter what the opponent is going to do".

Best response:
Strategy si is a best response to s

if ui si ; s

ui si ; s

for all si , given s

In words, a best response is "i should play this, because I will always be better o than
anything else I could possibly do, given that I think this is what the opponent is going
to do".
A Nash equilibrium of a game occurs when no player has incentive to change his strategy given
the strategies that all other players are playing.
That is, everybody is playing their own best response to what others are actually doing.
Nash equilibrium:
Strategy prole (s1 ; s2 ; :::; sN ) is a nash equilibrium if
ui si ; s

ui si ; s

for all si , for all i

In words, a nash equilibrium is when "everybody is playing what is best for themselves,
given their correct conjectures of what they think everybody else is actually doing".

3. Volunteering
Example 1 (Dutta, 5.4) In this game, each of two players can volunteer some of their spare time
planting and cleaning up the community garden. They both like a nicer garden and the garden is
nicer if they volunteer more time to work on it. However, each would rather that the other person do
the volunteering. Suppose that each player can volunteer 0,1,2,3, or 4 hours. If player 1 volunteers
x hours and 2 volunteers y hours, then the resultant garden gives each of them a utility payo equal
p
to x + y. Each player also gets disutility from the work involved in garden. Suppose that player
1 gets a disutility equal to x (and player 2 likewise gets a disutility equal to y). Hence, the total
p
p
utility of player 1 is x + y x, and that of player 2 is x + y y
Write down the best response of a player to every strategy of the other player

A:
Step 1: Write down the payo matrix of the game.

Player
1

0
1
2
3
4

0
0; 0
0; 1
0:59; 1:41
1:27; 1:7
2; 2

1
1; 0
0:41; 0:41
0:27; 0:73
1; 3
1:76; 1:24

Player 2
2
1:41; 0:59
0:73; 0:27
0; 0
0:76; 0:24
1:55; 0:44

3
1:7;
1;
0:24;
0:55;
1:35;

4
1:27
1
0:76
0:55
0:35

2;
1:24;
0:44;
0:35;
1:17;

2
1:76
1:55
1:35
1:17

Step 2: Find the best response.

Notice that payos are symmetric, so we only need to nd the best response of a single player.
Given that player 2 plays 0, player 1 considers his best response.

Player
1

2 plays 0
0;
0;
0:59;
1:27;
2;

0
1
2
3
4

Since u1 (0; 0) = u1 (1; 0) > u1 (s1 ; 0) where s1 2 f2; 3; 4g, 1s best response is either 0 or 1
Given that player 2 plays 1, player 1 considers his best response.

Player
1

2 plays 1
1;
0:41;
0:27;
1;
1:76;

0
1
2
3
4

Since u1 (0; 1) > u1 (s1 ; 1) where s1 2 f1; 2; 3; 4g, 1s best response is 0.

Similarly, given that player 2 plays 3; 4 or 5, 1s best response is to play 0.
By symmetry, given that player 1 plays s1 2 f0; 1; 2; 3; 4g, 2s best response is to play 0.
Notice that this game has a Nash equilibrium equal to (s1 ; s2 ) = (0; 0)
Alternative Solution:
Notice that both players have symmetric payos. Without loss of generality, consider player 1s
payo, given by
p
u1 (s1 ; s2 ) = s1 + s2 s1
Taking the derivative, we observe
@u1 (s1 ; s2 )
1
= p
@s1
2 s1 + s2

1<0

for s1 ; s2 2 f1; 2; 3; 4g

Since each players payo is always decreasing in the number of hours volunteered, their best
response to the opponents action is always to volunteer 0 hours. At the Nash equilibrium, each
player chooses to volunteer 0 hours.
4

Appendix. Examples of 2x2 Games with Different Nash Equilibria

Prisoners Dilemma
Loyal
Defect

Loyal
2,2
3,0

Defect
0,3
1,1

Story: Two suspects in a crime are held in separate cells.

If both stay quiet, each will be convicted of a minor
offense. If one defects and agrees to act as a witness
against the other, he will be freed and the other will be
convicted of a major crime. If both defect, their testimony
will be less valuable and each gets a moderate sentence.
Features:
u1(defect, loyal) > u1(loyal, loyal)
> u1(defect, defect) > u1(loyal, defect)
Nash Equilibrium: (Defect, Defect)
Intuition: The incentive to free-ride eliminates the
possibility that the mutually desirable outcome (loyal,
loyal) occurs. Regardless of what your opponent does, it
is always optimal to defect.

Battle of the Sexes

Football Opera
Football 2,1
0,0
Opera
0,0
1,2
Story: Two people wish to go out together. One person
prefers football, the other prefers opera. But both are
most unhappy if they end up going out alone.

Features:

u1(football, football) > u1(opera, opera)

u2(opera, opera) > u2(football, football)
Nash Equilibrium: (Football, Football), (Opera, Opera),
1 mixed strategy NE
Intuition: Players agree that it is better to cooperate but
disagree about best outcome.

Pure Coordination Game

Early
Late

Early
1,1
0,0

Late
0,0
1,1

Game of Assurance
Movie
TV

Movie
2,2
0,0

TV
0,0
1,1

Story: Two teammates arrange to meet to work on a

project. Unfortunately, neither can remember the meeting
time. Both are required to be present for the task to be
completed. Each person thus chooses between arriving
early or late in the hope that the other person would also
be present.
Features:
u(early, early) = u (late, late)
are preferred to u(late, early) and u(early, late)
Nash Equilibria: (Early, Early), (Late, Late), 1 mixed
strategy NE
Intuition: Players desire to cooperate, but are unsure
what action opponents will take. Payoffs are symmetric in
both same-action outcomes and what matters is that
players manage to coordinate.

Story: Two people wish to coordinate on what to do in

their free time. While they would be happy either both
watching a movie or TV, each of them knows that the
other party prefers watching a movie to watching TV.

Features:
u(movie, movie) > u(TV, TV)
are preferred to u(movie, TV) and u(TV, movie)
Nash Equilibria: (Movie, Movie), (TV, TV), 1 mixed
strategy NE
Intuition: Players have common interest in a pareto
superior equilibrium. Given sufficient common belief in
opponents action, the mutually preferred outcome exists
as a focal point.

Hawk-Dove (Chicken)

Matching Pennies

Hawk Dove
Hawk
-1,-1
2,0
Dove
0,2
1,1
Story: Two animals are fighting over some prey. Each
can be passive (dove) or aggressive (hawk). Each prefers
to be a hawk if the opponent is a dove because the hawk
will always get the prey over the dove. Two doves will
share the prey. Conversely, two hawks will fight each
other to the death, leading to the least preferred outcome.
Features:
u1(hawk, dove) > u1(dove, dove)
> u1(dove, hawk) > u1(hawk, hawk)
Nash Equilibria: (Hawk, Dove), (Dove, Hawk), 1 mixed
strategy NE
Intuition: It is mutually beneficial for players to play
different strategies. Opposite of coordination game. Here,
players share a rival, non-excludable resource (prey), and
sharing comes at a cost (reduced food). Yet, this cost has
to be balanced against likelihood of fighting to the death.

Heads Tails
Heads 1,-1
-1,1
Tails
-1,1
1,-1
Story: Two people each have a penny and simultaneously
choose whether to show heads or tails. If they show the
same side, person 2 pays person 1 a dollar. Conversely, if
they show different sides, person 1 pays person 2 a dollar.
Each person cares only about the amount of money
received and prefers to receive more rather than less.
Features:
P1 prefers (heads, heads) or (tails, tails).
P2 prefers (heads, tails) or (tails, heads).
Nash Equilibria: No pure strategy NE due to conflicting
preferences. Mixed strategy NE exists.
Intuition: Given that players know what each other are
going to do, there is always one player who is better off
deviating.1

Chiappori, Levitt, Groseclose (2002), and Palacios-Huerta (2003) find that how soccer players and goalies take penalty kicks resemble a mixed strategy equilibrium.
Zhenyu Lai: [email protected]