# Question Session 07

These are the slides I prepared for the question session. In the end we had a small-group discussion about just part of this. Because the event turned into a discussion, there is no recording. You are of course welcome to ask questions.

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## Notes

### Mixed Strategies (Alex’ Question)

*Optional. You do not need to know about mixed strategies for this course.*

In many situations you might want to vary how you act rather than always acting in the same way. You may benefit from making your actions unpredictable to others. The game-theoretic notion of a mixed strategy is intended to capture this.

To illustrate, suppose you are playing the game rock, paper, scissors (see Index of Games). It would not be good if your opponent could predict your action. How might you play? One possibility would be to try to pick each action with equal probability, but in a way that was unpredictable. To illustrate, you might toss a three-sided dice and decide what to do based on which side it lands on.

In a mixed strategy, one or more players does not simply select an action to perform but rather assigns weights to the different actions and then selects one at random in such a way that the probability of selecting an action matches the weight assigned to it.

To illustrate, in *hawk-dove* (see Index of Games), Gangster Y might decide to play *stay home* with probability 0.75 and *attack* with probability 0.25.

They expected payoff from a mixed strategy is obtained by calculating the expected payoff for each action and multiplying it by the probability that the action will be performed if the mixed strategy is implemented. (See Tadelis (2013, p. §6.1.4) for details.)

The notion of a Nash equilibrium can be extended to mixed strategies:

‘Nash equilibrium is defined as a list of mixed strategies, one for each player, such that the choice of each is her best choice, in the sense of yielding the highest expected payoff for her, given the mixed strategies of the others.’ (Dixit, Skeath, & Reiley, 2014, p. 216; see Osborne & Rubinstein, 1994, p. definition §32.3 for a more formal statement)

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## Glossary

*mixed strategy*for a player is a probability distribution over the actions available to the player.

## References

*The Mind is Flat: The Illusion of Mental Depth and The Improvised Mind*. Penguin UK.

*Game theory: A critical introduction*. London: Routledge. Retrieved from http://webcat.warwick.ac.uk/record=b2587142~S1

*Handbook of the Fundamentals of Financial Decision Making*(Vol. Volume 4, pp. 99–127). WORLD SCIENTIFIC. https://doi.org/10.1142/9789814417358_0006

*Theory of Games and Economic Behavior*. Princeton, N.J. ; Woodstock: Princeton University Press.

*Games and information: An introduction to game theory*(4th ed). Malden, MA ; Oxford: Blackwell Pub.

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