C Then, we introduce an elementary deﬁnition of perfect Bayesian equilibrium that works for all extensive games and that reﬁnes both subgame perfect equilibrium and weak perfect Bayesian equilibrium. {\displaystyle {\hat {c}}} Check out our 5G Training Programs below! p ∗ If the sender is a friend, then the receiver's utility is 1 (if they accept) or 0 (if they reject). On the other hand, Prob(Friend|Not give) = p is required by Bayes's Rule, since both types take that action and it is uninformative about the sender's type. An interesting feature of the derivation of the existence of equilibrium is that it uniquely pins down the beliefs that must be held upon observing some o -path action. {\displaystyle i} Bayesian game. {\displaystyle x(1)+(1-x)(-1)=2x-1,} {\displaystyle {\hat {c}}} A Perfect Bayesian Equilibrium is a strategy proﬁle and a speciﬁcation of beliefs that each player has about the other players’ types. We need to check two things: sequential rationality and consistency. Moreover, option 3 is even a SPE, since the only subgame here is the entire game! , such that the player contributes if-and-only-if their cost is less than We are looking for a symmetric PBE. There are 2 players: a professor and a student. . The concept of perfect Bayesian equilibrium for extensive-form games is defined by four Bayes Requirements. {\displaystyle {\hat {c}}} 1 Perfect Bayesian Equilibrium 1.1 Problems with Subgame Perfection In extensive form games with incomplete information, the requirement of subgame perfection does not work well. Weak Perfect Bayesian Equilibrium Carlos Hurtado Department of Economics University of Illinois at Urbana-Champaign hrtdmrt2@illinois.edu June 16th, 2016 C. Hurtado (UIUC - Economics) Game Theory. An example sender-receiver game motivates the claim that Perfect Bayesian equilibria can still be undesirable. However, Bayesian games often contain non-singleton information sets and since subgames must contain complete information sets, sometimes there is only one subgameâthe entire gameâand so every Nash equilibrium is trivially subgame perfect. ^ I {\displaystyle \leq .5.} The issue in both of the following examples is oﬀthe equilibrium path beliefs, namely I assigning positive probability to E playing a strictly dominated strategy oﬀthe equilibrium path. Perfect Bayesian (Nash) Equilibria. 2 This shows how pessimistic beliefs can result in an equilibrium bad for both players, one that is not Pareto efficient. The 4 requirements together de–ne a strong perfect Bayesian equilibrium (SPBE). equilibrium concept. In the one-stage game, each player builds if-and-only-if their cost is smaller than their expected gain from building. − Loosely, a sequential equilibrium is a Nash Equilibrium that ). First note that if the opponent is strong, it is a dominant strategy for him to play F — ﬁght. Update the uninformed player™s beliefs using Bayes™rule, whenever possible. These –rst 3 requirements constitute what is known as a weak perfect Bayesian equilibrium (WPBE). n»3Ü£ÜkÜGÝ¯z=Ä[=¾ô=Bº0FX'Ü+òáû¤útøûG,ê}çïé/÷ñ¿ÀHh8ðm W 2p[à¸AiA«Ný#8$X¼?øAKHIÈ{!7Ä. So now both players know that their opponent's cost is above, In day 1, both players built. Bayesian Nash equilibrium for the rst price auction It is a Bayesian Nash equilibrium for every bidder to follow the strategy b(v) = v R v 0 F(x)n 1dx F(v)n 1 for the rst price auction with i.i.d. Suppose the receiver's beliefs when receiving a gift is that the sender is a friend with probability, The sender's strategy is: never give, and the receiver's strategy is: reject. I If t 2 k, no exchange I If t 2

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