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EC 246: Decisions & Games: U (B, Z) ) and (U (C, X), U (C, Y), U (C, Z) ), It Must Be True That The Smallest Component of The

This document provides the answer key to 5 problems from a problem set on decisions and games. Problem 1 refers students to an online Wikipedia article for its solution. Problem 2 presents a payoff matrix for a Traveler's Dilemma game and notes that {97, 97} is the dominance-solved Nash equilibrium. Problem 3 discusses the rationalization of players' strategies in a game. Problem 4 states the unique Nash equilibrium is for both players to choose "Joy". Problem 5 provides the logic for determining a player's "maximin strategy".

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27 views

EC 246: Decisions & Games: U (B, Z) ) and (U (C, X), U (C, Y), U (C, Z) ), It Must Be True That The Smallest Component of The

This document provides the answer key to 5 problems from a problem set on decisions and games. Problem 1 refers students to an online Wikipedia article for its solution. Problem 2 presents a payoff matrix for a Traveler's Dilemma game and notes that {97, 97} is the dominance-solved Nash equilibrium. Problem 3 discusses the rationalization of players' strategies in a game. Problem 4 states the unique Nash equilibrium is for both players to choose "Joy". Problem 5 provides the logic for determining a player's "maximin strategy".

Uploaded by

Parmesh Gupta
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© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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EC 246: Decisions & Games

Answer Key to Problem Set IV

Problem 1: This problem is taken directly from the Wikipedia site on Common Knowledge.
For its resolution, see the website:
http://en.wikipedia.org/wiki/Common_knowledge_%28logic%29

Problem 2: The following payoff-matrix applies to a version of the Travelers’ Dilemma


where each traveler can specify own value between 97 and 100.

100 99 98 97
100 100, 100 97, 101 96, 100 95, 99
99 101, 97 99, 99 96, 100 95, 99
98 100, 96 100, 96 98, 98 95, 99
97 99, 95 99, 95 99, 95 97, 97

Note that in the above game, {97, 97} is the dominance-solved Nash equilibrium. Similar
logic applies to the “full game” where {2, 2} is the dominance-solved Nash equilibrium.

Problem 3: The unique Nash equilibrium of the game is: {y, d}, and this Nash equilibrium
is “dominance-solved”. The fact that Column “is rational” will preclude her from playing
either ‘b’ or ‘c’ as they are strictly dominated strategies. That fact, in and of itself, does not
permit us to “prune/eliminate” b and c. Rather, the following to things – the fact that Row “is
rational” and the first-order knowledge of Row about Column – “I know that Column is
rational” – will convince Row that Column will not play ‘c’ and thus lead Row to play ‘y’.
Then, second-order knowledge of Column about Row – “I know that Row is rational, and
that Row knows that I am rational” – will convince Column that Row will play ‘y’; this
knowledge will lead Column to play ‘d’.

Problem 4: Unique pure-strategy Nash equilibrium: {Joy, Joy}. All pure strategies of each
player are rationalizable. To determine Adam’s chain of logic rationalizing his locating in
Sin-city, follow the example presented in the Lecture Notes / Slides.

Problem 5: If {u(a, x), u(a, y), u(a, z)} strictly vector-dominates {u(b, x), u(b, y),
u(b, z)} and {u(c, x), u(c, y), u(c, z)}, it must be true that the smallest component of the
vector {u(a, x), u(a, y), u(a, z)} must be strictly greater than the smallest component of each
of the two vectors {u(b, x), u(b, y), u(b, z)} and {u(c, x), u(c, y), u(c, z)}, thus proving that a
is A’s “maximin strategy”.

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