Mixed Strategies

Consider the following classic zero-sum game called Matching Pennies. Players1 and 2 each put a penny on a table
simultaneously. If the two pennies come up the same side (heads or tails) then player 1 gets both; otherwise player
2 does. We can represent this in the following matrix:

→ This zero-sum game game that fails to have a pure-strategy Nash equilibrium
→ This does not mean that a Nash equilibrium will fail to exist? We will soon see that a Nash equilibrium will
indeed exist if we allow players to choose random strategies

Recall the child’s game rock-paper-scissors

With the following best-response correspondence for player 1

Just like in the Matching Pennies game, examining the two best-response correspondences (symmetric list would be
the best-response correspondence of player 2) immediately implies that there is no pure-strategy equilibrium.

Section 1 : Strategies, Beliefs, and Expected Payoffs

We now introduce the possibility that players choose stochastic strategies

→ gives the players a richer set of actions from which to choose,

→ gives them a richer set of possible beliefs that capture an uncertain world.

Finite Strategy Sets

When players have finite strategy sets Si:

With,

Example : the rock-paper-scissors game, in which Si ={R, P, S} (for rock, paper, and scissors, respectively).
We can define the simplex as

∆Si = {(σi(R), σi(P ), σi(S)) : σi(R), σi(P ), σi(S) ≥ 0, σi(R) + σi(P ) + σi(S) = 1},

As mentioned earlier, a pure strategy is just a special case of a mixed strategy. For example, in this game we can
represent the pure strategy of playing R with the degenerate mixed strategy: σ(R) = 1, σ(P ) = 0, σ(S) = 0.

For example, in the game of rock-paper-scissors, a player can choose rock or paper, each with equal probability, and
not choose scissors. In this case σi(R) = σi(P ) = 0.5 and σi(S) = 0. We will then say that R and P are in the
support of σi(.), but S is not.

Continuous Strategy Sets

In the case in which the pure-strategy sets are well-defined intervals, a mixed strategy will be given by a
cumulative distribution function:
Example: consider the Cournot duopoly game with a capacity constraint of 100 units of production, so that Si [0,
100] for i = ∈ 1, 2 .
Consider the mixed strategy in which player i chooses a quantity between 30 and 50 using a uniform distribution.
That is,

Graphically,

Beliefs and Mixed Strategies

Introducing probability distributions not only enriches the set of actions from which a player can choose but also
allows us to enrich the beliefs that players can have

For example, in the rock-paper-scissors game, we can represent the beliefs of player 1 as a triplet, (π1(R), π1(P ),
π1(S)), where by definition π1(R), π1(P ), π1(S) ≥ 0 and π1(R)+π1(P )+ π1(S) = 1. The interpretation of π1(s2)
is the probability that player 1 assigns to player 2 playing some particular s2 ∈ S2.

Recall that the strategy of player 2 is a triplet σ2(R), σ2(P ), σ2(S) ≥ 0, with σ2(R)+σ2(P )+σ2(S)=1, so we can
clearly see the analogy between π and σ .
Expected Payoffs

Example : Rock-Paper-Scissors

Assume that player 2 plays σ2(R) = 1/6, σ2(P ) = ½, σ2(S ) = 1/3 i-e, σ2 = (1/6, 1/2, 1/3)
the expected payoff for player 1 from any of his pure strategies,

v1(R, σ2) = 1 / 6 × 0 + 1 / 2 × (−1) + 1/3 × 1 = - 1 / 6

v1(P, σ2) = 1 / 6 × 1 + 1 / 2 × 0 + 1/3 × (−1) = -1/6

v1(S, σ2) = 1 / 6 × (−1) + 1 / 2 × 1 + 1/3 × 0 = 1/3

Note that if player 1’s chooses a mix σ1 = (1/3, 1/3, 1/3) the expected payoff from his mix is the weighted average of
the expected payoffs of each of the pure strategies in his mix against the opponent’s mix σ2 . Here, the expected
payoff from his mix = 0 and must lie between -1/6 and 1/3, the expected payoffs of the pure strategies in his mix
against the opponent’s mix σ2
Section 2 : Mixed-Strategy Nash Equilibrium

This definition is the natural generalization of definition 5.1. We require that each player be choosing a strategy σi∗
∈ ∆Si that is (one of) the best choice(s) he can make when his opponents are choosing some profile σ-i ∈ ∆S-i

As we discussed previously, there is another interesting interpretation of the definition of a Nash equilibrium. We
can think of σ-i ∗ as the belief of player 1 about his opponents, πi, which captures the idea that player I is uncertain of
his opponent’s behavior → Clearly rationality requires that a player play a best response given his beliefs (and this
now extends the notion of rationalizability to allow for uncertain beliefs) → A Nash equilibrium requires that these
beliefs be correct.

Now, the key to finding a mixed-strategy NE builds on the following important observation:

Imagine that in the Nash equilibrium profile σ ∗ the support of i’s mixed strategy σi∗ contains more than one
pure strategy—say si and si are both in the support of σi∗.
→ If a mixed strategy is a BR (maximizes player 1’s expected payoff from his mix), then each of the
pure strategies in the mix must themselves be a BR. In particular, each must yield the same expected
payoff. (This is so because the expected payoff from a mix is a weighted average of the expected payoffs
of the pure strategies in the mix against the opponent’s mix)

Thus, if a player is randomizing between two alternatives then he must be indifferent between them. This simple
observation will play an important role in computing mixed-strategy Nash equilibria.
→ In particular we know that if a player is playing a mixed strategy then he must be indifferent between the
actions he is choosing with positive probability, that is, the actions that are in the support of his mixed
strategy. One player’s indifference will impose restrictions on the behavior of other players, and these
restrictions will help us find the mixed-strategy Nash equilibrium.
Example ; Matching pennies

→ No pure-strategy Nash equilibrium. Does it have a mixed-strategy Nash equilibrium? To answer this, we have to
find mixed strategies for both players that are mutual best responses.

Define mixed strategies for players 1 and 2 as follows:

- Let p be the probability that player 1 plays− H and 1 - p the probability that he plays T .
- Similarly let q be the probability that player 2 plays H−and 1 - q the probability that he plays T .

TRICK: To find q (the NE mix of player 2), we need to equalize player 1’s expected payoffs from playing each of
his two pure actions as follows:

Solving for q gives q = ½; player 1 will be indifferent between playing H or T

Using the trick, we found how player 2 is mixing in equilibrium by setting player 1 expected payoffs equal,
given player 1 is also mixing in equilibrium

Now, following Tadelis,

Graphically,

Note : In terms of best responses, this simple analysis results in the best-response correspondence of player 1,
which is
Graphically,

Similarly, we can calculate the payoffs of player 2 given a mixed-strategy p of player 1 to be

Implying player 2’s best response :

To find a Nash equilibrium we are looking for a pair of choices (p, q) for which the two best-response
correspondences cross. Thus the mixed strategy NE is
(p, q) = (1/2, 1/2)

INTUITION : We know from proposition 6.1 that when player 1 is mixing between H and T , both with positive
probability, then it must be the case that his payoffs from H and from T are identical.

→ This, it turns out, imposes a restriction on the behavior of player 2, given by the choice of q. Player 1
is willing to mix between H and T if and only if v1(H, q) = v1(T, q), which will hold if and only if q =
1/2 .

→ This
2 is the way in which the indifference of player 1 imposes a restriction on player 2: only when
player 2 is playing q = 1 / 2 will player 1 be willing to mix between his actions H and T .

→ Similarly player 2 is willing to mix between H and T only when v2(p, H) = v2(p, T ), which is true
 only when p = 1/2

LOGIC : There is a simple logic, which we can derive from the Matching Pennies example, that is behind the general
method for finding mixed-strategy equilibria in games. The logic relies on a fact that we have already discussed: if a
player is mixing several strategies then he must be indifferent between them. What a particular player i is willing to
do depends on the strategies of his opponents. Therefore, to find out when player i is willing to mix some of his pure
strategies, we must find strategies of his opponents, i, that make him indifferent between some of his pure actions.
−

Multiple Equilibria: Pure and Mixed

Mixed-strategy equilibria need not be unique when they exist.
→ In fact when a game has multiple pure-strategy Nash equilibria, it will almost always have other Nash
equilibria in mixed strategies.
Consider the following game:

→ (M, R) and (D, C) are both pure-strategy Nash equilibria.

It turns out that in 2 X 2 matrix games like this one, when there are two distinct pure-strategy Nash equilibria then
there will almost always be a third one in mixed strategies.
For this game,
- let player 1’s mixed strategy be given by σ1 = (σ1(M), σ1(D)), with σ1(M) = p and σ1(D) = 1 − p,

- and let player 2’s mixed strategy be given by σ2 = (σ2(C), σ2(R)), with σ2(C) = q and σ2(R) = 1 − q.

Player 1 will mix when v1(M, q) = v1(D, q), or when

q × 0 + (1 − q) × 3 = q × 4 + (1 − q) × 0

⇒ q = 3/7

and player 2 will mix when v2(p, C) = v2(p, R), or when

p × 0 + (1 − p) × 4 = p × 5 + (1 − p) × 3

⇒ p = 1/6

This yields our third Nash equilibrium: (σ1∗, σ2∗) = {(1/6, 5/6), (3/7, 4/7)}

It is interesting to see that all three equilibria would show up in a graphical representation of the best-response
functions. Using the payoff functions v1(M, q) and v1(D, q) we have
And using the payoff functions v2(p, C) and v2(p, R) we have

We can draw the two best-response correspondences as they appear in Figure 6.4. Notice that all three Nash
equilibria are revealed in Figure 6.4: (p, q) ∈ {(1, 0) , (1/6, 3/7) , (0, 1)} are all Nash equilibria, where (p, q) =
(1, 0) corresponds to the pure strategy (M, R), and (p, q) = (0, 1) corresponds to the pure strategy (D, C).

Note : An alternative interpretation of the NE mixes here is that each player’s mix actually represents the other
player’s beliefs about what player 1 is going to do. So here we found the beliefs such that each player is exactly
ndifferent over what they do → Interpretation particularly interesting in the “Battle of the Sexes” game.

Section 3 : IESDS and Rationalizability Revisited

With the introduction to mixed strategies we can reconsider the concepts of IESDS and rationalizability, and
present them in their precise form.
For example, consider the following game:

and denote mixed strategies for players 1 and 2 as triplets, (σ1(U), σ1(M), σ1(D)) and (σ2(L), σ2(C), σ2(R)),
respectively.

IESDS → no pure strategy is strictly dominated by another pure strategy for any player and suggests that anything
can happen in this game.

→ If we allow for mixed strategies, we can find that the strategy L for player 2 is strictly dominated by a
strategy that mixes between the pure strategies C and R.

→ That is, (σ2(L), σ2(C), σ2(R)) = ( 0, ½, ½) strictly dominates choosing L for sure because this
mixed strategy gives player 2 an expected payoff of 2 if player 1 chooses U , of 2.5 if player 1 chooses
M, and of 3.5 if player 1 chooses D.

First step of IESDS with mixed strategies reduces the game to :

Now, the strategy U for player 1 is strictly dominated by a strategy that mixes between the pure strategies M and
D. That is, (σ1(U), σ1(M), σ1(D)) = ( 0, ½, ½) strictly dominates choosing U for sure because this mixed
strategy gives player 1 an expected payoff of 2 if player 2 chooses C and 1.5 if player 2 chooses R

Further reducing the game to:

Looking now for the set of rationalizable strategies, the result will be the same.

→ Starting with player 2, there is no belief that he can have for which playing L will be a best response. This is
easy to see because either C or R will be a best response to one of player 1’s pure strategies, and hence, even if
player 1 mixes then the best response of player 2 will either be to play C, to play R, or to mix with both. Then
after reducing the game a similar argument will work to eliminate U from player 1’s strategy set.

Note : The concepts of IESDS and rationalizability are closely related.

Fact If a strategy σi is strictly dominated then it is never a best response.

This fact is useful, and it implies that the set of a player’s rationalizable strategies is no larger than the set of a
player’s strategies that survive IESDS. This is true because if a strategy was eliminated using IESDS then it must
have been eliminated through the process of rationalizability. The reverse is also true.
Summary
●
Allowing for mixed strategies enriches both what players can choose and what they can believe about
the choices of other players.
●
In games for which players have opposing interests, like the Matching Pen- nies game, there will be no
pure-strategy equilibrium but a mixed-strategy equilibrium will exist.
●
Allowing for mixed strategies enhances the power of IESDS and of rationalizability.