Universidad de La Sabana Game Theory

Chı́a, Cund. Colombia. Problem Set 1 2020-1

1. Find all the Nash equilibria for the following games in strategic form
   
(0, 0) (−3, 1) (1, 1) (0, 0) (0, 0)
(a)
(1, −3) (−1, −1) (g) (0, 0) (1, 1) (0, 0)
  (0, 0) (0, 0) (1, 1)
(1, −1) (−1, 1)
(b)
(−1, 1) (1, −1)
 
(1, 1) (0, 0) (0, 3)
  (h) (0, 0) (1, 1) (0, 0)
(3, 1) (0, 0)
(c) (3, 0) (0, 0) (1, 1)
(0, 0) (1, 3)
 

(10, 0) (5, 2)
 (0, 0) (−1, 1) (1, −1)
(d) (i) (1, −1) (0, 0) (−1, 1)
(10, 1) (2, 0)
(−1, 1) (1, −1) (0, 0)
 
(2, 10) (1, 0) (1, 3)
(e)
 
(0, 0) (0, 10) (5, 3) (2, 0) (3, 2) (4, 2) (5, 3)
 (3, 2) (1, 1) (3, 1) (4, 2) 
  (j)  
(4, 3) (2, 7) (0, 4)  (2, 2) (1, 6) (3, 7) (4, 10)
(f)
(5, 5) (5, −1) (−4, −2) (2, −1) (2, 8) (4, 6) (2, 1)

2. Where possible apply the iterated elimination of strictly dominated strategies to the
following games:
   
(−1, −1) (1, −2) (0, 0) (1, 1) (2, 1)
(a)
(−2, 1) (0, 0) (c)  (1, 2) (0, 0) (3, −1)

(−1, −1) (1, −2) (0, −2)
 (0, −1) (3, 0) (3, 2)
(b)
(−2, 1) (0, 0) (10, 0)

Hint: Remember that the dominating strategy does not have to be a pure strategy.

3. Suppose that players 1,2,3 are on a committee and must choose between three alter-
natives, α, β, γ. First, players each privately write their choices on a piece of paper,
the choices are then counted and the alternative with the most votes wins. If there is
a three-way tie, then player 1 gets to choose the outcome. The payoffs for each of the
players for each choice are given below:

Option P layer1 P layer2 P layer3

Solve this game using iterative elimination of dominated strategies.

1
Universidad de La Sabana Game Theory
Chı́a, Cund. Colombia. Problem Set 1 2020-1

4. Find all the pure-strategy Nash equilibria of the following strategic-form game, involv-
ing two players Aparna and Caroline. Each of them simultaneously makes a demand
for a share of ten dollars. Let qA and qC , denote the demands of Aparna and Caroline
respectively, where 0 ≤ qA ≤ 10 and 0 ≤ qC ≤ 10. If qA + qC ≤ 10, then agreement is
reached, and Aparna’s payoff is qA and Caroline’s payoff is qC . However, if qA +qC > 10,
then Aparna and Caroline fail to agree on how to divide the ten dollars, and each of
them gets a payoff of zero. Solve this game using iterative elimination of dominated
strategies.

5. Consider the following game in strategic form with continuous spaces action spaces.
The set of pure strategies for each player is the unit interval [0, 1]. Player 1 chooses
x ∈ [0, 1] and player 2 chooses y ∈ [0, 1]. Payoffs for each player are given by

 
1 − c
 x<y 1 − c
 y>x
π1 (x, y) = 1/2 x=y π2 (x, y) = 1/2 y=x
 
 c x<y  c y<x

where 1/2 < c < 1.

(a) Does any value of x for Player 1 strictly dominate any other value?
(b) Does any value of x for Player 1 weakly dominate any other value?
(c) What happens if you iteratively eliminate all strictly (weakly) dominated strate-
gies?

6. Two countries 1 and 2, simultaneously set their respective rates of capital taxation,
t1 y t2 , where 0 ≤ t1 , t2 ≤ 1. The total amount of capital invested in country 1 is
k1 = 2 − 2t1 + t2 , and in country 2 is k2 = 2 − 2t2 + t1 . Each country wants to maximize
its total revenue from capital taxation, where revenue to country i is Ri = ti ki , where
i = 1, 2. Derive the Nash equilibrium tax rates of this game, and show that the Nash
equilibrium is Pareto-inefficient.