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L7: Solving the Sample Exam Question

The solution presented has two aims. The first is to show, obviously, how the learned lessons and studied examples can be put to use to answer the question. The second aim is to show how to answer concisely. For example, a proof that something is true must be complete, but a proof that something is false can be established by one counterexample. Also, the particular question might have a structure that implies that a proof that something is true can be based on showing that a part of it holds, and then to state how by induction we must arrive that all other parts also hold, without explicitly doing the calculations.

Testing possible Nash Equilibria

Initial observation: the students with smaller indices are more likely to attend because of their lower travel costs. Analogously, the students with higher indices are less likely to attend. On this basis to check whether a proposed strategy is a Nash Equilibrium, we first look to see whether the highest indexed student attending (i.e. student 2 in question (a)) has an incentive not to attend, and whether the lowest indexed student not attending (i.e. student 3 in question (a)) has an incentive to attend.

Let us(X|Y) denote the payoff to player s if players of set X attend the party and players of set Y do not.
(a) u2({1,2}|{3,4,5,6}) = 2-2 = 0 u2({1}|{2,3,4,5,6}) = 0

u3({1,2}|{3,4,5,6}) = 0
u3({1,2,3}|{4, 5,6}) = 3-2 = 1

The strategy is not a Nash Equilibrium because student 3 has an incentive to attend rather than not attending.

(b)

u3({1,2,3}|{4,5,6}) = 3-2 = 0 u3({1,2}|{3,4,5,6}) = 0

u4({1,2,3}|{4,5,6}) = 0
u4{1,2,3,4}|{5,6}) = 4-5 = -1

The strategy is a Nash Equilibrium. Student 3 (and also 2 and 1) has no incentive not to attend. Also, student 4 (and also 5 and 6) has no incentive to attend.

us(A,m) denote the payoff to player s if s attends and an additional m of the other players also attend. us(N,m) = 0 is the payoff to player s if s does not attend and an additional m of the other players do attend.
(c) We first test wither it is a dominant strategy for student 1 to attend u1(A,0) = 1-1 = 0 u1(A,1) = 2-1 = 1 u1(N,0) = 0 u1(N,1) = 0

u1(A,2) = 3-1 = 2 u1(A,|3) = 4-1 = 3

u1(A,4) = 5-1 = 4

u1(N,2) = 0 u1(N,3) = 0
u1(N,4) = 0

u1(A,5) = 6-1 = 5

u1(N,5) = 0

Thus, the strategy of student 1 not attending is weakly dominated

However, we cannot say anything about student 2. u2(A,0) = 1-2 = -1 u2(N,0) = 0 u2(A,2) = 3-2 = 1 u2(N,2) = 0 In a similar way, we cannot say anything about students 3, 4 and 5. We now test wither it is a dominant strategy for student 6 not to attend u6(A,0) = 1-6 = -5 u6(N,0) = 0 u6(A,1) = 2-6 = -4 u6(N,1) = 0

u6(A,2) = 3-6 = -3 u6(A,3) = 4-6 = -2

u6(A,4) = 5-6 = -1

u6(N,2) = 0 u6(N,3) = 0
u6(N,4) = 0

u6(A,5) = 6-6 = 0

u6(N,5) = 0

Thus, the strategy of student 6 attending is weakly dominated

(d) By dominated strategy deletion, we assume that student 1 attends the party and student 6 does not.
We now test whether, in the reduced game, it is a dominant strategy for student 2 to attend

u2(A,1) = 2-2 = 0
u2(A,2) = 3-2 = 1

u2(N,1) = 0
u2(N,2) = 0

u2(A,3) = 4-2 = 2
u2(A,4) = 5-2 = 3

u2(N,3) = 0
u2(N,4) = 0

Thus, the strategy of student 2 not attending is weakly dominated in the reduced game

We now test whether, in the reduced game, it is a dominant strategy for student 5 not to attend u5(A,1) = 2-5 = -3 u5(N,1) = 0

u5(A,2) = 3-5 = -2
u5(A,3) = 4-5 = -3 u5(A,4) = 5-5 = 0

u5(N,2) = 0
u5(N,3) = 0 u5(N,4) = 0

Thus, the strategy of student 5 attending is weakly dominated in the reduced game.

Under the iterated deletion of dominated strategies, we assume that students 1 and 2 attend the party and students 5 and 6 do not. We now test whether, in the reduced game, it is a dominant strategy for student 3 to attend
u3(A,2) = 3-2 = 1 u3(A,3) = 4-2 = 2 u3(N,2) = 0 u2(N,3) = 0

Thus, the strategy of student 3 not attending is strongly dominated in the reduced game

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We now test whether, in the reduced game, it is a dominant strategy for student 4 not to attend u4(A,2) = 3-5 = -2 u4(A,3) = 4-5 = -1 u4(N,2) = 0 u4(N,3) = 0

Thus, the strategy of student 4 attending is strongly dominated in the reduced game

We have now deleted all strategies apart from one: students 1, 2 and 3 attend, while students 4, 5 and 6 do not attend.

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(e) Suppose that no students attend the party. Checking incentives for a student to attend, the value of attending as 1 and the cost of travelling is at least 1. Thus, not student is better off by attending.
Suppose that all students attend. Checking incentives for a student not to attend, the value of attending, which is 6 is lost, and the cost of travel, which is up to 6 is gained. Thus the gain never exceeds the loss. Thus, the no students attending and all students attending are Nash Equilibria.