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TEACHING SUGGESTIONS
The material in this chapter covers a variety of issues that
require some knowledge of the analysis of both sequentialmove and simultaneous-move games. Only one section deals
with mixed strategies, so it is possible to present most of the
material here after having introduced simultaneous-move
games but before introducing mixing. We have used this
approach in our own teaching.
To address rule changes in games, you will want to draw on
examples used in previous class periods. We focus on the different outcomes that can arise when rules are changed. When
a game is changed from simultaneous move to sequential
move, for example, the change can create a first- or secondmover advantage. Games like the battle of the two cultures
or chicken have first-mover advantages in their sequentialmove versions; the tennis-point example has a second-mover
advantage in its sequential-move version. Other games show
no change in equilibrium as a result of the change in rules;
games like the prisoners dilemma, in which both players
have dominant strategies, fall into this category.
Similarly, changing a game from sequential play to simultaneous play can mean that new equilibria ariseeither
multiple equilibria or equilibria in mixed strategies. Use the
sequential-game examples you used to convey the material
from Chapter 3 to show that there might be additional equilibria in the simultaneous-move versions of the game. This
works for the tennis-point game if you teach it as a sequential
game or for the three-person voting example from Ordeshook
(see Chapter 3 discussion).
The most interesting component of the analysis in Chapter 6 is the representation of sequential-move games in strategic
form and the solution of such games from that form. The
37
38 | Chapter 6
Nash equilibria but that not all Nash equilibria are subgame
perfect. This example is also useful for explaining why
Boeings threat to fight if Airbus enters is not credible. This
concept will be developed in more detail and used extensively in Chapter 9, so it is useful to introduce it before.
A, B
2, 2
Up
Dow
A, B
0, 0
Left
Righ
3, 1
(b)
GAME 1 Color Coordination (with Delay)
PLAYER B
if Down,
then Left
if Down,
then Right
Up
2, 2
2, 2
Down
0, 0
3, 1
PLAYER A
If North,
then Top
If North,
then Bottom
North
0, 2
2, 1
South
1, 0
1, 0
PLAYER A
PLAYER B
s if S
n if S and
s if S again
n if S and n
if S again and
s if S again
n if S and n
if S again and
n if S again
0, 1
0, 1
0, 1
0, 1
S and N if n
5, 4
2, 3
2, 3
2, 3
5, 4
3, 2
4, 5
4, 5
S and S if n and
S if n again
5, 4
3, 2
2, 2
1, 0
Ads
No Ads
Ads
3, 3
7, 0
No Ads
0, 7
4, 4
COKE
PEPSI
Ads
No A
s
Ad
ds
COKE, PEPSI
3, 3
7, 0
COKE
BOEING
In
$300m, $300m
$100m, $100m
Out
0, $1b
0, $1b
AIRBUS
No
Ad
s
PEPSI
Ads
No A
ds
0, 7
4, 4
40 | Chapter 6
The subgame-perfect equilibrium is again (Ads,
Ads); when both players have a dominant strategy,
the dominant-strategy equilibrium will hold in both
the simultaneous and the sequential versions of the
game.
(c) This game is a prisoners dilemma. The (Ads,
Ads) equilibrium is jointly inferior to the (No ads,
No ads) equilibrium. The two firms would do
better if they could somehow cooperate and
both choose not to advertise. Whether such cooperation is likely to occur is the subject of later
chapters.
5. (a)
Friedas
Urban
BIG GIANT
Urban
Rural
Urban
5, 2, 5
Rural
2, 5, 5
4, 4, 3
TITAN
Rural
BIG GIANT
Urban
Rural
Urban
5, 5, 2
3, 4, 4
Rural
4, 3, 4
4, 4, 4
TITAN
VENDOR
1
85, 85
100, 170
125, 195
150, 200
160, 160
170, 100
110, 110
150, 170
175, 175
200, 150
195, 125
170, 150
120, 120
170, 150
195, 125
200, 150
175, 175
150, 170
110, 110
170, 100
160, 160
150, 200
125, 195
100, 170
85, 85
Fast
Curve
Swing
0.75
0.75
Take
0.00
0.25
BATTER
10 yd
20 yd
10 yd
1/2
20 yd
1/4
OFFENSE
PITCHER
Fast
Curve
Swing
0.75
0.7500
Take
0.00
0.1875
BATTER
42 | Chapter 6
(c) Explain why the payoff matrix in the third-down
situation is:
DEFENSE
10 yd
20 yd
10 yd
19/40
7/10
20 yd
7/16
OFFENSE
(d) Use the table in part c to determine the (mixedstrategy) equilibrium of the third-down game.
ANSWER (a) Offense uses 20-yard play; Defense defends
against 20-yard play. Value = 1/4.
(b) Offense uses 10-yard play with probability 3/5;
Defense defends against 10-yard play with probability
3/5. Value = (3/5)(1/2) + (2/5)1 = 7/10.