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Game Theory and Business Strategy: Individual Assignment 2

This document provides 7 individual assignments involving game theory concepts like Nash equilibrium, dominant strategies, and maximin equilibrium. The assignments involve analyzing games represented in normal and strategic form to determine equilibrium strategies and outcomes under different conditions. Students are asked to apply concepts like dominance, Nash equilibrium, and maximin to solve games from business strategy contexts.

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PK
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148 views

Game Theory and Business Strategy: Individual Assignment 2

This document provides 7 individual assignments involving game theory concepts like Nash equilibrium, dominant strategies, and maximin equilibrium. The assignments involve analyzing games represented in normal and strategic form to determine equilibrium strategies and outcomes under different conditions. Students are asked to apply concepts like dominance, Nash equilibrium, and maximin to solve games from business strategy contexts.

Uploaded by

PK
Copyright
© © All Rights Reserved
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
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Individual Assignment 2

Game Theory and Business Strategy


(Sessions 16–18)

1. In a one-shot simultaneous-move game, two firms can choose the strategy Collude or
the strategy Cheat. If both firms choose strategy Collude, each earns a profit of Rs.50
lakh. If both players choose strategy Cheat, each earns a profit of Rs. 10 lakh. If one firm
chooses strategy Cheat and the other chooses strategy Collude, then the cheating firm
earns Rs.65 lakh and the colluding firm earns nothing:
a. Write the above game in normal form.
b. Find each player’s dominant strategy, if such strategies exist!
c. What is the Nash equilibrium of this game?
d. Rank strategy pairs by aggregate pay-off. Can the outcome with the highest
aggregate payoff be sustained in equilibrium?

2. Consider the following card game where a, b, c, d, e, f, g and h are positive constants.

Player 2
Red Black
Red a, b c, d
Player 1

Black e, f g, h

a. If {Red, Red} is a dominant strategy equilibrium, then what inequalities must hold
among a, b, …, g,h?
b. If {Red, Red} is a Nash equilibrium but not a dominant strategy equilibrium, then
which of the inequalities must be satisfied?
c. If Black is a dominated strategy for Player 1, can {Black, Red} be a Nash
equilibrium outcome?

3. Solve the game given below by eliminating the dominated strategies iteratively:

Player 2
Far left Left Right Far right
Top 5, 4 4, 5 1, 3 5, 2
Player

Middle 2, 3 3, 2 4, 2 3, 1
Bottom 2, 3 1, 4 2, 1 4, 3
1
4. Consider the following game table:

Player 2
Spades Clubs Hearts Diamonds
Ace 4, 4 –, 1 –, 3 5, 2
Player 1

King 3, – 4, 2 4, 3 3, 1
Queen 2, 3 1, – 2, – 4, 3
Jack –, 3 3, 1 2, 3 1, 2

a. Fill in the blanks in such a way that Player 1 has a dominant strategy.
b. Fill in the blanks in such a way that Player 2 has a dominant strategy
c. Fill in the blanks in such a way that neither player have a dominant or dominated
strategy.

5. Two card players are made to sit on separate tables and they both are asked to choose a card.
The card could be a red card, a black card or a joker. If they pick different kinds of cards, they get
nothing. If they both pick the same kind of card, they get the following prizes:

Red Black Joker


Player 1 3 6 3
Player 2 6 4 3

a. Write the game in normal form.


b. Which strategy combinations are Nash Equilibria in this game?
c. Can any one of these outcomes act as a focal point for this game?

6. Find the maximin equilibrium of the game below:

Player 2
Left Right
Up 0, 0 –1, 1
Player 1
Down 1, –1 –2, 2

7. The following is a zero-sum game. Solve the values of A, B, C and K.

Player 2
Alpha Beta
Alpha K, 0 2, K – A
Player 1
Beta B, KB C, K+ 11

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