ECON 306 Lecture Notes - Lecture 1: Nash Equilibrium, Minimax

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21 Jan 2015
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We have seen that nash equilibria are likely outcomes of games. Even very simple games like rock-scissors-paper do not have any such nash equilibrium. Whereas in games with pure nash equilibria players have even an interest of communicating their strategy to the other player before the game, in rock- Scissors-paper it is crucial to leave your opponent in the dark about what you are planning. You want to surprise your opponent, and such a surprise is best achieved by surprising yourself. This could be done by delegating the decision about your strategy to a random device. This is essentially the idea of a mixed strategy. An example for a mixed strategy in rock-scissors-paper is to play rock, scissors, or paper with probabilities 50%, 25%, or 25%, respectively. Before the game is played, the player decides randomly, based on these probabilities which pure strategy to use.

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