MAST30022 Decision Making

Proof of Nashs Theorem (solution)

Denition 1. A subset A of R
k
is called
bounded if there exists r > 0 such that x r for any x A.
closed if R
k
\A is open (i.e. for any x
0
R
k
\A, there exists > 0 such that

x R
k
: x x
0
<

is contained in R
k
\ A). Intuitively A is closed if it contains all its boundary points.
compact if it is both bounded and closed.
convex if for any two points x
1
, x
2
A, the line segment between them, namely {x
1
+ (1 )x
2
: 0 1},
is contained in A.
Theorem 1 (John Nash 1951). Any non-cooperative 2-person game (zero-sum or non-zer-sum) with a
nite number of pure strategies for each player has at least one equilibrium pair.
A proof of Nashs theorem requires the following well-known result.
Theorem 2. (Brouwers Fixed Point Theorem) Let C = be a compact convex set of R
k
. Let f : C C
be a continuous function. Then there exists a point x

C such that f(x

) = x

.
Such a point x

is called a xed point.

Proof of Nashs Theorem. For any x X and y Y , dene
c
i
= max{A
i
y
T
xAy
T
, 0}, 1 i m,
d
j
= max{xB
j
xBy
T
, 0}, 1 j n,
x

i
=
x
i
+ c
i
1 +

m
k=1
c
k
, 1 i m,
y

j
=
y
j
+ d
j
1 +

n
k=1
d
k
, 1 j n.
Let x

= (x

1
, . . . , x

m
) and y

= (y

1, . . . , y

n
). Then x

X and y

Y .
Remark 1. c
i
can be interpreted as the regret function of player I in playing x instead of his pure
strategy a
i
. Similarly, d
j
can be interpreted as the regret function of player II in playing y instead of
her pure strategy A
j
.
The function f(x, y) = (x

, y

) is a continuous function from X Y R

m+n
to X Y .
Claim: (x, y) = (x

, y

) (i.e. (x, y) is a xed point of f) (x, y) is in equilibrium.

(x, y) is in equilibrium x X, xAy
T
xAy
T
. In particular, taking x = (0, . . . ,
(i)
1 , . . . , 0), we
have xA = A
i
, and so A
i
y
T
xAy
T
, implying c
i
= 0 for all i. Similarly, d
j
= 0 for all j. Hence,
x

i
= x
i
and y

j
= y
j
, i.e. (x, y) = (x

, y

).
Let (x, y) = (x

, y

) and suppose (x, y) is not an equilibrium pair. Then, either

x X s.t. xAy
T
> xAy
T
(1)
or
y Y s.t. xB y
T
> xBy
T
. (2)
Consider case (1). Since
x = x
1
(1, 0, . . . , 0) + . . . + x
i
(0, . . . ,
(i)
1 , . . . , 0) + . . . + x
m
(0, . . . , 1),
we have
xAy
T
= x
1
A
1
y
T
+ . . . + x
m
A
m
y
T
.
So
xAy
T
> xAy
T
A
i
y
T
> xAy
T
for some i
c
i
> 0 for some i

k=1
c
k
> 0.
Now,
xAy
T
= x
1
A
1
y
T
+ . . . + x
m
A
m
y
T
i

s.t. A
i

y
T
xAy
T
and x
i
> 0
c
i
= 0
x

i
= x
i
/(1 +

k
c
k
) < x
i

= x
(x, y) = (x

, y

),
which leads to a contradiction. Therefore (x, y) is an equilibrium pair. The reasoning is similar in case
(2). The claim is then proved.
Note that X Y is a compact convex set of R
m+n
. Hence by Brouwers Theorem and the claim, there
exists (x, y) X Y s.t. (x, y) = (x

, y

), i.e. (x, y) is an equilibrium.