Proper equilibrium
A solution concept in game theory
Relationships
Subset of:	Trembling hand perfect equilibrium
Significance
Proposed by:	Roger B. Myerson
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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.

Contents 1 Definition 2 Example 3 Proper equilibria of extensive games 4 References

[edit] Definition

Given a normal form game and a parameter ε > 0, a totally mixed strategy profile for the game is defined to be ε-proper if the following holds: If, for two pure strategies s and s' for the same player it is the case that the expected payoff of playing s is smaller than the expected payoff of playing s' (against the mixed strategies of the other players in the profile), then the probability assigned to s is at most ε 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 ε approaches 0, of a sequence of ε-proper totally mixed strategy profiles.

[edit] 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.

[edit] 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.

[edit] References

• Roger B. Myerson. Refinements of the Nash equilibrium concept. International Journal of Game Theory, 15:133-154, 1978.

• Eric van Damme. "A relationship between perfect equilibria in extensive form games and proper equilibria in normal form games." International Journal of Game Theory 13:1--13, 1984.

v • d • e Topics in game theory Definitions Normal-form game · Extensive-form game · Cooperative game · Information set · Preference Equilibrium concepts Nash equilibrium · Subgame perfection · Bayesian-Nash · Perfect Bayesian · Trembling hand · Proper equilibrium · Epsilon-equilibrium · Correlated equilibrium · Sequential equilibrium · Quasi-perfect equilibrium · Evolutionarily stable strategy · Risk dominance · Pareto efficiency · Quantal response equilibrium · Self-confirming equilibrium Strategies Dominant strategies · Pure strategy · Mixed strategy · Tit for tat · Grim trigger · Collusion · Backward induction Classes of games Symmetric game · Perfect information · Simultaneous game · Sequential game · Repeated game · Signaling game · Cheap talk · Zero-sum game · Mechanism design · Bargaining problem · Stochastic game · Large poisson game · Nontransitive game · Global games Games Prisoner's dilemma · Traveler's dilemma · Coordination game · Chicken · Centipede game · Volunteer's dilemma · Dollar auction · Battle of the sexes · Stag hunt · Matching pennies · Ultimatum game · Minority game · Rock-paper-scissors · Pirate game · Dictator game · Public goods game · Blotto games · War of attrition · El Farol Bar problem · Cake cutting · Cournot game · Deadlock · Diner's dilemma · Guess 2/3 of the average · Kuhn poker · Nash bargaining game · Screening game · Trust game · Princess and monster game Theorems Minimax theorem · Purification theorem · Folk theorem · Revelation principle · Arrow's impossibility theorem See also Tragedy of the commons · All-pay auction · List of games in game theory