Nash Equilibria and Maxmin

Question 1

What are the requirements for a NE?

Answer 1

1) Each player is playing their best response function to their beliefs
2) Beliefs are correct

Question 2

What are the properties of NE?

Answer 2

1) Stability - best response to each other

2) Self-fulfilling - deviation will result in loss

Question 3

Limitations of NE?

Answer 3

1) No guarantee that they exits in all games in pure strategy
2) Insecurity about other player’s rationality
3) Can be multiple NE

Question 4

What is the rationale behind a MaxMin strategy?

Answer 4

It minimises risk by not relying on opponents rationality. This occurs by choosing the strategy that has maximum of the minimum payoffs.

Question 5

What can be observed of a maxmin strategy?

Answer 5

1) A dominant strategy is a maxmin strategy
2) The payoff of each player in a NE is at least his maxmin value
3) It is NOT a stable outcome unless is a NE.

Question 6

What are Focal points?

Answer 6

The name given to strategies that may have focal power - players are naturally attracted towards a particular strategy