Pure equilibria when one player wants distance
Question
Two players each choose a real number from at the same time. Player 1 receives the absolute difference between the two numbers, and Player 2 pays that same amount (a zero-sum game). How many Nash equilibria in pure strategies does this game have?
Short answer
. Player 2's only best reply is to copy Player 1's number, giving payoff 0, but whenever the numbers are equal Player 1 can deviate to a farther point and earn something positive. So no pair of pure choices is stable.
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Open the worked solutionLessons behind this question
- Continuous Random Variables and Probability Density Functions
- Cumulative Distribution Functions
- Option Mechanics: Calls, Puts, Moneyness, Intrinsic Value, and Exchange vs. OTC Markets
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