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Game Theory
Game Theory by Osborne, ch1-4
20
Economics
Undergraduate 3
03/14/2010

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Term
A strategic game
Definition

(Strategic game with ordinal preferences)
 A strategic game (with ordinal preferences) consists of:

  • a set of players
  • for each player, a set of actions
  • for each player, preferences over the set of action profiles.
Term
Nash equilibrium
Definition

(Nash equilibrium of strategic game with ordinal preferences)

The action profile a* in a strategic game with ordinal preferences is a Nash equilibrium if, for every player i and every action ai of player i, a* is at least as good according to player i's preferences as the action profile (ai , a*-i) in which player i chooses ai while every other player j chooses a*j . Equivalently, for every player i,

ui(a*) ≥ ui(ai , a*-i)   for every action ai of player i,

where ui is a payoff function that represents player i's preferences.

Term
Strict domination
Definition
In a strategic game with ordinal preferences,
player i's action a" i strictly dominates her action a'i if
ui(a" i , a-i) > ui(a'i , a-i) for every list a-i of the other players' actions,
where ui is a payoff function that represents player i's preferences. We say that the
action a0i is strictly dominated.
Term
Weak domination
Definition
In a strategic game with ordinal preferences,
player i's action a" i weakly dominates her action a'i if
ui(a" i , a-i) ≥ ui(a'i, a-i) for every list a-i of the other players' actions
and
ui(a" i , a-i) > ui(a'i , a-i) for some list a-i of the other players' actions,
where ui is a payoff function that represents player i's preferences. We say that the
action a'i is weakly dominated.
Term
Symmetric two-player strategic game with ordinal preferences
Definition

A two-player strategic game with ordinal preferences is symmetric if the players' sets of actions are the same and the players' preferences are represented by payoff functions u1 and u2 for which u1(a1, a2) = u2(a2, a1) for every action pair (a1, a2).

Term
Symmetric Nash equilibrium
Definition

An action profile a* in a strategic game with ordinal preferences in which each player has the same set of actions is a symmetric Nash equilibrium if it is a Nash equilibrium and a*i is the same for every player i.

(Note: A symmetric game may have no symmetric Nash equilibrium)

Term
Mixed Strategy
Definition
A mixed strategy of a player in a strategic game is a probability distribution over the player's actions.
Term

Mixed strategy Nash Equilibrium

of strategic game with vNM preferences)

Definition

The mixed strategy profile a* in a stratic game with vNM preferences is a (mixed strategy) Nash equlibrium if, for each player i and every mixed strategy ai of player i, the expected payoff to player i of a* is at least as large as the expected payoff to player i of (ai, a*-1) according to a payoff function whose expected value represents player i's preferences over lotteries. Equivalently, for each player i,

Ui(a*)≥Ui(ai,a*-i) for every mixed strategy ai of playeri,

where Ui(a) is player i's expected payoff to the mixed strategy profile.

Term
Best response functions
Definition

For a strategic game with ordinal preferences, Bi(a-i) is the set of player i's best actions when the list of the other players' actions is a-i. For a strategic game with vNM preferences, Bi(a-i) is the set of player i's best mixed strategies when the list of the other players' mixed strategies is a-i.


(Note: the mixed strategy profile a* is a mixed strategy NE iff a*i is in Bi(a*-i) for every player i.

Term
Characterization of mixed strategy NE of finite game
Definition

A mixed strategy profile a* in a strategic game with vNM preferences in which each player has finitely many actions is a mixed strategy NE iff, for each player i,

  • the expected payoff, given a*-i, to every action to which a*i assigns positive probability is the same
  • the expected payoff, given a*-i, to every action to which a*i assigns zero probability is at most the expected payoff to any action to which a*i assigns positive probability.

Each player's expected payoff in an equilibrium is her expected payoff to any of her actions that she uses with positive probability.

Term
Existence of mixed strategy Nash equlibrium in finite games
Definition
Every strategic game with vNM preferences in which each player has finitely many actions has a mixed strategy NE.
Term
Strict Domination
Definition

In a strategic game with vNM preferences, player i's mixed strategy ai strictly dominates her action a'i, if

Ui(ai,a-i) > ui(a'i,a-i) for every list a-i of the other players' actions,

where ui is a payoff function whose expected value represents player i's preferences over lotteries and Ui(ai,a-i) is player i's expected payoff under ui when she uses the mixed strategy ai and the actions chosen by the other players are given by a-i. We say that the action a'i is strictly dominated.

Term
Weak domination
Definition

In a strategic game with vNM preferences, player i's mixed strategy ai weakly domintes her action a'i if


Ui(ai,a-i) ≥ ui(a'i,a-i) for every list a-i of the other players' actions

and

Ui(ai,a-i) > ui(a'i,a-i) for some list a-i of the other players' actions,


where ui is a payoff function whose expected value represents player i's preferences over lotteries and Ui(ai,a-i) is player i's expected payoff under ui when she uses the mixed strategy ai and the actions chosen by the other players are given by a-i. We say that the action is weakly dominated.

Term
Existence of mixed strategy NE with no weakly dominated strategies in finite games (Proposition 122.1)
Definition
Every strategic game with vNM preferences in which each player has finitely many actions has a mixed strategy NE in which no player's strategy is weakly dominated.
Term
Pure strategy equilibria survive when randomnization is allowed (Proposition 122.2)
Definition
Let a* be a NE of G and for each player i let a*i be the mixed strategy of player i that assigns probability one to the action a*i. Then a* is a mixed strategy NE of G'.
Term
Pure strategy equilibria survive when randomnization is prohibited (Proposition 123.1)
Definition
Let a* be a mixed strategy NE of G' in which the mixed strategy of each player i assigns probability one to the single action a*i. Then a* is a NE of G.
Term
Symmetric two-player strategic game with vNM preferences (Definition 129.1)
Definition
A two-player strategic game with vNM preferences is symmetric if the players' sets of actions are the same and the players' preferences are represented by the expected values of payoff functions u1 and u2 for which u1(a1,a2) = u2(a2,a1) for every action pair (a1,a2).
Term
Symmetric mixed strategy Nash equilibrium (Definition 129.2)
Definition
A profile a* of mixed strategies in a strategic game with vNM preferences in which each player has the same set of actions is a symmetric mixed strategy NE if it is a mixed strategy NE and a*i is the same for every player i.
Term
Existence of symmectric mixed strategy NE in symmetric finite games (Proposition 130.1)
Definition
Every symmetric strategic game with vNM preferences in which each player's set of actions is finite has a symmetric mixed strategy NE.
Term
Characterization of mixed strategy NE (Proposition 142.2)
Definition

A mixed strategy profile a* in a strategic game with vNM preferences is a mixed strategy NE iff, for each player i,

  • a*i assigns probability zero to the set of actions ai for which the action profile (ai,a*-i) yields player i an expected payoff less than her expected payoff to a*
  • for no action ai does the action profile (ai, a*-i) yield player i an expected payoff greater than her expected payoff to a*.
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