Proper equilibrium

Proper equilibrium
Proper equilibrium
Solution concept in game theory
Relationship
Subset of	Trembling hand perfect equilibrium
Significance
Proposed by	Roger B. Myerson

Proper equilibrium is a refinement of Nash Equilibrium due to Roger B. Myerson. Proper equilibrium further refines Reinhard Selten's notion of a trembling hand perfect equilibrium by assuming that more costly trembles are made with significantly smaller probability than less costly ones.

Definition

Given a normal form game and a parameter $\epsilon >0$ , a totally mixed strategy profile $\sigma$ is defined to be $\epsilon$ -proper if, whenever a player has two pure strategies s and s' such that the expected payoff of playing s is smaller than the expected payoff of playing s' (that is $u(s,\sigma _{-i})<u(s',\sigma _{-i})$ ), then the probability assigned to s is at most $\epsilon$ times the probability assigned to s'.

A strategy profile of the game is then said to be a proper equilibrium if it is a limit point, as $\epsilon$ approaches 0, of a sequence of $\epsilon$ -proper strategy profiles.

Example

The game to the right is a variant of Matching Pennies.

*Matching Pennies with a twist*
	Guess heads up	Guess tails up	Grab penny
Hide heads up	-1, 1	0, 0	-1, 1
Hide tails up	0, 0	-1, 1	-1, 1

Player 1 (row player) hides a penny and if Player 2 (column player) guesses correctly whether it is heads up or tails up, he gets the penny. In this variant, Player 2 has a third option: Grabbing the penny without guessing. The Nash equilibria of the game are the strategy profiles where Player 2 grabs the penny with probability 1. Any mixed strategy of Player 1 is in (Nash) equilibrium with this pure strategy of Player 2. Any such pair is even trembling hand perfect. Intuitively, since Player 1 expects Player 2 to grab the penny, he is not concerned about leaving Player 2 uncertain about whether it is heads up or tails up. However, it can be seen that the unique proper equilibrium of this game is the one where Player 1 hides the penny heads up with probability 1/2 and tails up with probability 1/2 (and Player 2 grabs the penny). This unique proper equilibrium can be motivated intuitively as follows: Player 1 fully expects Player 2 to grab the penny. However, Player 1 still prepares for the unlikely event that Player 2 does not grab the penny and instead for some reason decides to make a guess. Player 1 prepares for this event by making sure that Player 2 has no information about whether the penny is heads up or tails up, exactly as in the original Matching Pennies game.

Proper equilibria of extensive games

One may apply the properness notion to extensive form games in two different ways, completely analogous to the two different ways trembling hand perfection is applied to extensive games. This leads to the notions of normal form proper equilibrium and extensive form proper equilibrium of an extensive form game. It was shown by van Damme that a normal form proper equilibrium of an extensive form game is behaviorally equivalent to a quasi-perfect equilibrium of that game.

v t e Topics of game theory
Definitions	Congestion game Cooperative game Determinacy Escalation of commitment Extensive-form game First-player and second-player win Game complexity Graphical game Hierarchy of beliefs Information set Normal-form game Preference Sequential game Simultaneous game Simultaneous action selection Solved game Succinct game Mechanism design
Equilibrium concepts	Bayes correlated equilibrium Bayesian Nash equilibrium Berge equilibrium Core Correlated equilibrium Coalition-proof Nash equilibrium Epsilon-equilibrium Evolutionarily stable strategy Gibbs equilibrium Mertens-stable equilibrium Markov perfect equilibrium Nash equilibrium Pareto efficiency Perfect Bayesian equilibrium Proper equilibrium Quantal response equilibrium Quasi-perfect equilibrium Risk dominance Satisfaction equilibrium Self-confirming equilibrium Sequential equilibrium Shapley value Strong Nash equilibrium Subgame perfection Trembling hand equilibrium
Strategies	Appeasement Backward induction Bid shading Collusion Cheap talk De-escalation Deterrence Escalation Forward induction Grim trigger Markov strategy Pairing strategy Dominant strategies Pure strategy Mixed strategy Strategy-stealing argument Tit for tat
Classes of games	Auction Bargaining problem Global game Intransitive game Mean-field game n-player game Perfect information Large Poisson game Potential game Repeated game Screening game Signaling game Strictly determined game Stochastic game Symmetric game Zero-sum game
Games	Go Chess Infinite chess Checkers All-pay auction Prisoner's dilemma Gift-exchange game Optional prisoner's dilemma Traveler's dilemma Coordination game Chicken Centipede game Lewis signaling game Volunteer's dilemma Dollar auction Battle of the sexes Stag hunt Matching pennies Ultimatum game Electronic mail game Rock paper scissors Pirate game Dictator game Public goods game Blotto game War of attrition El Farol Bar problem Fair division Fair cake-cutting Bertrand competition Cournot competition Stackelberg competition Deadlock Diner's dilemma Guess 2/3 of the average Kuhn poker Nash bargaining game Induction puzzles Trust game Princess and monster game Rendezvous problem
Theorems	Aumann's agreement theorem Folk theorem Minimax theorem Nash's theorem Negamax theorem Purification theorem Revelation principle Sprague–Grundy theorem Zermelo's theorem
Key figures	Albert W. Tucker Amos Tversky Antoine Augustin Cournot Ariel Rubinstein Claude Shannon Daniel Kahneman David K. Levine David M. Kreps Donald B. Gillies Drew Fudenberg Eric Maskin Harold W. Kuhn Herbert Simon Hervé Moulin John Conway Jean Tirole Jean-François Mertens Jennifer Tour Chayes John Harsanyi John Maynard Smith John Nash John von Neumann Kenneth Arrow Kenneth Binmore Leonid Hurwicz Lloyd Shapley Melvin Dresher Merrill M. Flood Olga Bondareva Oskar Morgenstern Paul Milgrom Peyton Young Reinhard Selten Robert Axelrod Robert Aumann Robert B. Wilson Roger Myerson Samuel Bowles Suzanne Scotchmer Thomas Schelling William Vickrey
Search optimizations	Alpha–beta pruning Aspiration window Principal variation search max^n algorithm Paranoid algorithm Lazy SMP
Miscellaneous	Bounded rationality Combinatorial game theory Confrontation analysis Coopetition Evolutionary game theory Glossary of game theory List of game theorists List of games in game theory No-win situation Topological game Tragedy of the commons

Proper equilibrium

Definition

Example

Proper equilibria of extensive games

References

Further reading