Bayesian Equilibrium

Today’s class was so short. But it was so interesting!

The contents of the class were three: multi-stage games and subgame perfection, Bayesian Equilibrium, and Anarchy economy.

Multi-stage games:
The games are where players act in turns. In the class setting, there were two Nash equilibria. But only one of them was reasonable. This subgame perfection can be checked by backward induction.

Bayesian Equilibrium:
We often can not know each other’s payoff because we do not always know other’s payoff and non-monetary issues. But if we assume each player can assign probability distribution to other’s payoffs, we can use the concept of Nash equilibrium. This is Bayesian Equilibrium. In Bayesian Equilibrium, players choose best strategy according to (other’s payoff probability)・(its payoff).

Anarchy economy:
This is opposition concept of perfect market. There are two players. Each one has one unit of labor. They can produce food and weapons. Weapons are used to protect and acquire foods. Only food consumption is valued. Suppose “might(=power) is right”, whoever has most weapons takes all food, the equilibrium outcome is that both invest all labor for weapons.


Following is lecture notes:
If food consumption is decided proportion of weapons( vi=yi/y1+y2*X), equilibria is y1=12=y*, because of symmetricity????