Game theory Homework 2 2/10-2023

Geerthikan Mohan

1.
a)
If Larissa chooses black:

If Larissa chooses Lavender:

If Larissa chooses yellow.

b) In game theory a dominated strategy is considered as a strategy where a player's choice,

regardless of other players' choices, will lead to the best result for that player. There are no
dominated strategies.
For instance, Julie won’t get a higher utility by picking black, yellow, og lavender every time. It
also depends on what the other one’s pick. As mentioned, a dominated strategy is considered as a
strategy where a player's choice, regardless of other players' choices, will lead to the best result
for that player. In this case Julies utility depends on what the other chooses if she for instance picks
her favorite color black. This does also apply to the other players, which is why there is no
dominated strategies in this game.

c) The pure Nash equilibria in this game represent situations where, given the choices of the
other two players, no one has an incentive to deviate from the strategy they have chosen.

This gives us six pure-strategy Nash equilibria.

They are:
1. Julie choosing yellow, Kristin choosing Lavender, and Larissa choosing black.
Game theory Homework 2 2/10-2023
Geerthikan Mohan

2. Julie choosing Lavender, Kristin choosing yellow, and Larissa choosing black.
3. Julie choosing black, Kristin choosing yellow, and Larissa choosing Lavender.
4. Julie choosing yellow, Kristin choosing black, and Larissa choosing Lavender.
5. Julie choosing Lavender, Kristin choosing black, and Larissa choosing yellow.
6. Julie choosing black, Kristin choosing lavender, and Larissa choosing yellow.

2. A)
I will write down this game in strategic format by doing a game matrix with 3 players.

We will use Bruce reference.

If Bruce buys sushi the matrix will look like this:

I have written -10 in the last row because I assumed that if it was only Bruce who bought no
one will enjoy the food, but Bruce used 10dollars which will negative for him.

If Bruce do not buy, the matrix will look like this.

b) If you look at the game there are no dominant strategy. So in this game we can therefore use the
best response analysis.
If you do this, the Nash equilibria in pure strategies will look like this:
Game theory Homework 2 2/10-2023
Geerthikan Mohan

The reason why I also have chosen the situation where no one buys as an equilibrium is because if
there is only one that buys then his payoff will be -10 because he is the only one buying and want
be enjoying it. So he will “waste” 10dollors. In this situation no one will want to change their
choice.

3.
a)
If you look at the demand for modern multiplex, you can see that the demand for the MM rises,
when the price for SS goes up.
Furthermore, you can see that the demand for the SS rises if the price for MM goes up.
Based on this you can conclude that the two movie theaters are substitutes.
If they were complements the demand will have gone down in one of the theaters if the price went
up on the other one.

b)
We know that the profit is calculated by revenue-cost.
The revenue ca be calculated by P·Q
For MM:
P MM ·(14−2 PMM + P SS)
For SS:
PSS · ( 8−2 PSS + P MM )

Now we will calculate the cost for each cinema:

C=cost pr costumer·Q
MM:
4 ·(14−2 P MM + PSS )

SS:
2 ·(8−2 P SS+ P MM )

As mentioned profit is calculated by revenue-cost:

MM:
Game theory Homework 2 2/10-2023
Geerthikan Mohan

P MM · ( 14−2 P MM + PSS ) −( 4 · ( 14−2 P MM + P SS ) ) =PMM · P SS−4 · P SS−2 · P MM +22· P MM −56

2

SS:
2
PSS · ( 8−2 PSS + P MM )−¿−2 · P SS+ PMM · P SS+ 12· PSS−2 · PMM −16

To find MM best response rule we will maximize each theaters profit.

The profit function for P MM =PMM · P SS−4 · P SS−2 · P2MM +22· P MM −56
We will use given hint and differentiate for P MM .
−4 PMM +22+ P SS
If we set this equal to zero we can find the optimal best response rule:
−4 PMM +22+ P SS=0

P MM =5 ,5+ 0 , 25 P SS

We will do the same for SS:

−4 PSS +12+ P MM
If we set this equal to zero we can find the optimal best response rule:
−4 PSS +12+ P MM =0
PSS =3+0 , 25 P MM

So the best rule response rule for MM is P MM =5 ,5+ 0 , 25 P SS and PSS =3+0 , 25 P MM for SS.

C) To find the quilibrium price and quantity we substitute MM best repsonse rule into SS’s
PSS =3+0 , 25 · ( 5 , 5+0 , 25 PSS )
PSS =3+1,375+0,0625 PSS
0,9375 PSS =4,375
PSS =4,6667
We will put in this price into P MM best response function:
P MM =5 ,5+ 0 , 25 ( 4,6667 ) =6,666675

Now we can calculate the Q:

MM:
Q MM =14−2 P MM + PSS
Q MM =14−2· 6,666675+ 4,6667=5,33335

SS:
QSS =8−2 P SS+ P MM
QSS =8−2 · 4,6667+ 6,666675=5,333

Now can we calculate the profit. We know that: Modern Multiplex has a per-customer cost of $4,
while Sticky Shoe has a per-customer cost of only $2.
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Geerthikan Mohan

MM:
6,6667 · 5,3333−4 ·5,3333 ≈ 14,22231

SS:
4,6667 · 5,3333−2· 5,3333 ≈ 14,22231
d)
P MM · PSS−4 · P SS−2 · P 2MM +22 · P MM −56+−2· P2SS + P MM · PSS +12 · P SS−2· P MM −16=(−2 · P2SS ) +2 · P MM · PSS +8

2 2
−2 · P SS+ 2· PMM · P SS +8 · P SS−2 · P MM +20 · P MM −72

Differentiating for PSS :

−4 PSS +2 PMM +8
Differentiating for P MM :
2 · P SS−4 P MM +20
We will put the equation against 0 and solve for Pss

−4 PSS +2 PMM +8=0

P MM +4
PSS =
2

2 · P SS−4 P MM +20=0

P MM + 4
=2 · P MM −10
2

P MM =8

8+ 4
PSS = =6
2

Q MM =14−2· 8+ 6=4

QSS =8−2 · 6+8=4

The profit can be calculated by:

8 · 4−4 · 4=16

6 · 4−2 · 4=16

The total profit is then: 32

Game theory Homework 2 2/10-2023
Geerthikan Mohan

4. A) If we say that everyone is choosing the same number including Elsa.

In a symmetric equilibrium is a strategy where everyone is playing the same strategy.
Since the players can choose a random number between 0-100, we will assume the average
is 50.
In this situation Elsa will then try to choose a number that is 2/3 of the average +9.
2
y= ( y+ 9 )
3
2
y= y+ 6
3
3 y=2 y +18
y=18
So if everyone is choosing 18 no one would choose any other number, because then their
number will be too far away from 2/3y +9. So, the best response is to choose 18.

b) In this situation we need to find out when the best response would be 5.
We will solve the following equation:
2
( x +9 ) =5
3
x +9=7 ,5

x=−1 , 5

This means that if we want 5 to be the best response then the average number should be 5,
but it is mentioned that you can only choose numbers from 0-100. So therefore 5 will be a
dominated strategy since there is no outcomes where 5 is the closest number.

c. We will use the same method as before to prove that choosing 90 is a dominated strategy.
2
( x +9 ) =90
3
x=126
As mentioned, you can only choose between 0-100, why 90 always will be a dominated
strategy.

The highest number possible will be:

2 218
( 100+9 )= =72,667
3 3
So in this situation choosing 90 will always be dominated by choosing 72,667 or below.

e) In c we found out that the highest number you could choose as target number would be
72,667.
We now need to find what the lowest target number can be.

2
( 0+ 9 )=6
3
Game theory Homework 2 2/10-2023
Geerthikan Mohan

This means that choosing a number below 6 or higher than 72,667 are all dominated
strategies.

f) In this situation Elsa knows that no one will choose a number below 6 or higher than 72,667.

2
( 72,667+ 9 )=54,467
3
2
( 6+ 9 )=10
3
In this situation it would therefore never be a best response to choose a number below 10 or above
54,467.

5.
a)
Professor:
3 p+1 (1− p )
4 p +0 ( 1− p )
3 p+1 (1− p )=4 p+0 ( 1− p )
3 p+1− p=4 p

1
p=
2

Student:
3 q−1 ( 1−q )
−2 q+ 0 (1−q )

3 q−1 ( 1−q )=−2 q+ 0 (1−q )

3 q−1+q=−2 q
1
q=
6
So in this situation the mixed strategy Nash equilibrium is that professor plays 50/50
between helping the student and for the student to play 1/6 on work and ask for help and 5/6
on slack and fish for hints.

b)
We will put in the probability we calculated in a.
Professor:

1 5 −1
3 · −1 · = =−0,3333333
6 6 3

Student:
1 1
3 · + 1· =2
2 2
Game theory Homework 2 2/10-2023
Geerthikan Mohan

−1
This gives us an expected payoff on -0,3333( ) for the professor and a payoff on 2 for the
3
student.

6. A)
The pure strategy Nash equilibria in this game is for Row to play U while Column plays R
and for Row to play D while Column plays R. This also indicates that R is a dominant
strategy for Column, and in this game Row doesn’t care about choosing U or D if Column
plays R.

B)
We know that the payoff for Row player choosing U can be calculated by:
3 q+ 2 ( 1−q )
And if he chooses D:
0 q +2(1−q)

We know that q=0:

3 · 0+2 (1−0 ) =2
0 · 0+2 ( 1−0 ) =2
In this situation Row player gets the same payoff.

We will do the same calculation for Column.

If Column plays L, the payoff is:
1 p+ 2 ( 1−p )
1 ·0 , 75+2 ( 1−0 , 75 ) =1 ,25

If Column player plays R, the payoff is:

2 p +3 ( 1− p )
2 ·0 ,75+3 ( 1−0 ,75 )=2 ,25
This shows us that choosing R gives a higher payoff.

Column prefers R over L since it gives a higher payoff, and therefore plays L with a
probability q=0, and Row is indifferent between choosing U or D, if Column always plays
R, since the payoff is the same.

So therefore p=0,75 and q=0 is a mixed-strategy Nash equilibrium because none of players
wants to deviate from their choice.

C) Given that Column chooses L with probability q=0, Row receives the same payoffs from
choosing either U or D. Because of this, Row can choose U or D with any probability mix,
including p=0.4. Therefore, the mixed strategy combination p=0,4 and q=0 is a mixed
strategy Nash equilibrium, because no one benefits from changing their choice considering
the opponent's choice.

D) In this situation p=1 and q=0,5.

This means that Row will always play U.
Given Row always chooses U, Column's payoff for L is 1, and for R it is 2.
Game theory Homework 2 2/10-2023
Geerthikan Mohan

In this situation Column would therefore prefer R since it has a higher payoff.
But if Column chooses L with the probability of q=0,5, it will never be an optimal choice since R
will always give a higher payoff to the Column player.
Therefore p=1 and q=0,5 is not a mixed strategy Nash equilibrium.

E) For the Column player the optimal strategy will be to play L with the probability q=0,
since R always will be the best choice.
For the Row player however, he is indifferent between choosing U or D if Column
player chooses R.
Therefore, he can play U with every probability between 0-1. In other words, this gives
us an infinite number of mixed strategy equilibria.

7.
Row's Mixed Strategy, if p is the probability that Row chooses Up.
Column:

If Column chooses Left, then Row’s payoff will be:

4 p +1 ( 1−p )=4 p+1− p=3 p+1
If Column chooses Right, then Row’s payoff will be:
−1 p +2 (1−p )=−1 p+2−2 p=−3 p+ 2

So for Row to be indifferent between up and down the probability need to be.
3 p+1=−3 p+2
6 p=1
1
p=
6
Column's Mixed Strategy if q is the probability that Column chooses Left.

Row:
If Row decides too choose up, the Columns payoff will be:
−4 q+1 ( 1−q )=−4 q +1−q=−5 q +1

If Row chooses down, then columns payoff will be:

−1 q−2 (1−q )=−1 q−2+ 2 q=q−2
So for column to be indifferent between left and right the probability need to be.
−5 q+ 1=q−2
6 q=3
1
q=
2
Therefore, the mixed strategy equilibrium is given at ( )
1 1
,
6 2

B)
We will do it in the same way:
Rows mixed strategy:
If we say that p is the probability that row chooses up
Game theory Homework 2 2/10-2023
Geerthikan Mohan

If Column chooses left then rows payoff is:

3 p+1 (1− p )=3 p+1− p=2 p +1
If Column chooses right then rows payofff is:
2 p +4 (1−p )=2 p+4−4 p=−2 p+ 4

So if row wants to be indifferent between up and down we will solve following:

2 p +1=−2 p+4
4 p=3
3
p=
4

For Row:
If Row decides to choose up, then columns payoff would be:
−3 q+ (−2 )( 1−q )=−3 q−2+2 q=−q−2
If row the decides to choose down, then columns payoff would be:
−1 q+ (−4 )( 1−q )=−1q−4+ 4 q=3 q−4

So if column wants to be indifferent we will solve following:

−q−2=3 q−4
4 q=2
1
q=
2

So the mixed strategy Nash equilibrium is for Row to play up with a probability of 3/4, and down
with a probability of 1/4, and for Column to play leftt with a probability of 1/2 and right with a
probability of 1/2.

8.
a)
Yes, in this game the pure strategy Nash equilibrium is when James chooses Land, and
Maxwell chooses Sea.

b) If we say that p1 is the probability for James to choose air and p2 is the probability that he
chooses sea, then we can calculate the probability for James choosing land by using :
1− p1 −p 2
We can do the same for Maxwell, just by replacing p with q.

Now we need to find out when they will be indifferent between choosing:
3 p1 +4 p2 +3 ( 1−p 1− p2 )=0 p1 +6 p2 + 4(1−p 1− p2)
For air and land:
3 p1 +4 p2 +3 ( 1−p 1− p2 )=7 p1 +0 p2 +3(1−p 1− p2 )
We have an equation two unknowns.
If we solve for p1 in the second equation, we get that p1= p2
Game theory Homework 2 2/10-2023
Geerthikan Mohan

We will put this in the first equation:

3 p1 +4 p1 +3 ( 1− p 1−p 1 )=0 p1 +6 p1 +4 (1− p 1−p 1)

We will solve for p1 :

1
p1 =
3
1
Now we can in p1 ' s place in the equation and solve for p2
3
1
( 1
3 )1
3
1
3 · +4 p 2+3 1− − p2 =0 · +6 p2 +4 (1− − p2 )
3 3

1
p2 =
3
Now we can calculate 1− p1 −p 2:
1 1 1
1− − =
3 3 3

We will do the same for Maxwell:

0 q 1+ 2q 2 +1 ( 1−q 1−q2 ) =2 q1 +0 q 2+ 2(1−q 1−q 2)
For air and land:
0 q 1+ 2q 2 +1 ( 1−q 1−q2 ) =1 q1 +2 q2 +0 (1−q 1−q 2)

We will solve q 1 in the first equation:

q 1=3 · q2−1
Now we can put this in q 1’s spot in the second equation:
0 · ( 3 ·q 2−1 ) +2 q 2+1=1·(3· q 2−1)+2 q 2+ 0(1−(3 · q2−1)−q2)

3
q 2=
7
3
We can now put in q 2 spot in the first equation:
7

3
( 3
) 3
0 q 1+ 2· +1 1−q 1− =2 q 1+ 0· + 2(1−q 1− )
7 7 7
3
7
2
q 1=
7
Now we can solve 1−q 1 −q 2 which is the probability for land.
2 3 2
1− − =
7 7 7
So the mixed strategy equilibrium to this game is for James to play 1/3air, 1/3 sea, and 1/3 land,
while Maxwell plays 2/7 air, 3/7 sea, and 2/7 for land.

C)
Game theory Homework 2 2/10-2023
Geerthikan Mohan

Another Nash equilibrium in mixed strategies arises when Player 1 selects "Air" with a 50%
probability and "Sea" with a 50% probability, whereas Player 2 consistently chooses "Air" as a pure
strategy.