Econ 351B, Yale University

Mathematical Game Theory

Problem Set 7

Due on: Tue. 04/06/10

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Instructor: Johannes Hörner

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1. (from Binmore) It is common knowledge that Gino and Polly always tell the truth. The
state space is Ω = {1, 2, 3, 4, 5, 6, 7, 8, 9}. The players’ initial possibility partitions are
shown in the Figure below (a). The players alternate in announcing how many elements
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their current possibility set contains.

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Gino 1 2 3 4 5 6 7 8 9

(a)
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✛✘
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Polly 1 2 3 4 5 6 7 8 9
✚✙
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(a) Why does Gino begin by announcing three in all states of the world?
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(b) How does Gino’s announcement change Polly’s possibility partition?

(c) Polly now makes her announcement. Explain why the possibility partitions afterward
are as in Figure (b).
(d) Continue updating the players’ possibility partitions as announcement. Eventually,
Figure (c) will be reached. Why will there be no further changes?
(e) In Figure (c), the event E that Gino’s possibility set contains two elements is {5, 6, 7, 8}.
Why is this common knowledge when the true state is ω = 5? Is E a public event?

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 ✛✘
Gino 1 2 3 4 5 6 7 8 9
✚✙
(b)
✛✘
Polly 1 2 3 4 5 6 7 8 9
✚✙

✛✘ ✛✘
Gino 1 2 3 4 5 6 7 8 9
✚✙ ✚✙
(c)
✛✘ ✛✘

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Polly 1 2 3 4 5 6 7 8 9
✚✙ ✚✙

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2. In the previous exercise, it is now common knowledge that Gino and Polly think each
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element of Ω is equally likely. Instead of announcing how many elements their current
possibility set contains, they announce their current conditional probability for the event
F = {3, 4}.
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(a) In Figure (a), explain why the event that Gino announces 1/3 is {1, 2, 3, 4, 5, 6} and
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the event that he announces 0 is {7, 8, 9}

(b) What is Polly’s possibility partition after Gino’s initial announcement? Explain why
the event that Polly now announces 1/2 is {1, 2, 3, 4} and the event that she announces
0 is {5, 6, 7, 8, 9}.
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(c) What is Gino’s new possibility partition after Polly’s announcement? Explain why the
event that Gino now announces 1/3 is {1, 2, 3}, the event that he announces 1 is {4},
and the event that he announces 0 is {5, 6, 7, 8, 9}.
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(d) What is Polly’s new possibility partition? Explain why the events that Polly will now
announce 1/3, 1, or 0 are the same as in (c).
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(e) Explain why each player’s posterior probability for the event F is now common knowl-
edge, whatever the true state of the world.
(f) In Figure (a), why is it true that no player’s posterior probability for F is common
knowledge in any state?
(g) What will the sequence of announcements be when the true state of the world is ω = 2?

3. Let Ω be the set of integers {0, 1, 2, . . . , 11} throughout. There are two agents.

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 (a) Let
P1 := {{0, 3, 6, 9}, {1, 4, 7, 10}, {2, 5, 8, 11}},
and
P2 := {{0, 4, 8}, {1, 5, 9}, {2, 6, 10}, {3, 7, 11}}.
What is the meet of these partitions?
(b) What is the meet if P1 (ω) is the set of all ω ′ ∈ Ω such that ⌊ω ′ /2⌋ = ⌊ω/2⌋, where ⌊x⌋
denotes the greatest integer less than or equal to x, and P2 (ω) is the set of all ω ′ ∈ Ω
such that ⌊ω ′ /4⌋ = ⌊ω/4⌋?

4. Alice’s, Beatrice’s, and Carol’s initial possibility partitions are as shown in the Figure be-

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low. It is common knowledge that their common prior attaches equal probability to each

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state. The table below shows Alice’s, Beatrice’s, and Carol’s initial posterior probabilities

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for F for each state and also the average of these probabilities. Each player now privately

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informs a kibitzer of her posterior probability for the event F = {1, 2, 3}. The kibitzer

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computes the average of these three probabilities and announces the result of his compu-
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tation publicly. Alice, Beatrice and Carol update their probabilities for F in the light of
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this new information. They then privately report their current posterior probabilities to
the kibitzer, who again publicly announces their average, and so on.
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1 1 1
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2 3 2 3 2 3
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4 5 4 5 4 5
Alice Beatrice Carol
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State Alice Beatrice Carol Average

1 2/3 2/3 1/2 11/18
2 2/3 1/2 2/3 11/18
3 1/2 2/3 2/3 11/18
4 2/3 1/2 2/3 11/18
5 1/2 2/3 1/2 5/9

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 (a) Draw the Figure again, but modify it to show the situation after the kibitzer’s first
announcement.
(b) Repeat (a) for the kibitzer’s second announcement.
(c) Repeat (a) for the kibitzer’s third announcement.
(d) How many announcements are necessary before consensus is reached on the probability
of F ?
(e) What will the sequence of events be when the true state of the world is ω = 1?
(f) If the true state of the world is ω = 1, does this ever become common knowledge?
(g) If ω = 5 isn’t the true state, at which stage will this fact become common knowledge?

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(h) If ω is even, at what stage does this become common knowledge?

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(i) Consensus is reached when everybody reports the same probability for F to the kibitzer.

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Why is it common knowledge that consensus has been reached as soon as it happens?

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5. Show that if two individuals have the same prior then it can be common knowledge between
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them that they assign different probabilities to some event. Show, however, that it cannot
be common knowledge that the probability assigned by individual 1 exceeds that assigned
by individual 2.
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6. Show that if two individuals have the same prior then it cannot be common knowledge
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between them that individual 1 believes the expectation of some lottery to exceed some
number η while individual 2 believes this expectation to be less than η.
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 Econ 351B, Yale University

Mathematical Game Theory

Problem Set 7: Suggested Answers

1. (a) Gino’s possibility set includes all the states of the world between which he

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cannot distinguish. For example, if the true state is 1, then Gino thinks that

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the state could be either 1, 2, or 3. As the diagram shows, for every state of

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the world, there are three possibilities among which Gino cannot distinguish.
(b) Gino’s announcement does not change Polly’s probability partition. Gino would

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make the same announcement in every state, so his announcement provide Polly
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with no new information. Formally, let E be the event that Gino’s probability
set contains three elements. Then E = Ω, so when Gino announces that the
event E has occured he reveals no new information.
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(c) Polly announces 1 if and only if the true state of the world is 9. Otherwise, she
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announces 4. Suppose that the true state of the world is 7,8, or 9, and consider
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how Gino’s knowledge differs before and after Polly’s announcement. Before
Polly’s announcement, Gino does not know whether the true state of the world
is 7,8, or 9. If the true state of the world is 9, then Polly announces 1 and Gino
then knows that the true state of the world is 9, so after Polly’s announcement
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9 is in a separate knowledge partition. If the true state of the world is 7 or

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8, then Polly announces 4 and Gino knows that the true state of the world is
not 9, but Gino does not know if the true state is 7 or 8, so 7 and 8 remain
part of the same knowledge partition. Polly’s announcement does not provide
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Gino with any new information in any other state of the world, because Polly
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announces 4 in all of the states 1 through 6.

(d) Gino and Polly now have the same knowledge partitions, so Gino and Polly
cannot learn anything from each other by transferring information. More for-
mally, let E be an event. Then ω ∈ Kg (E) ⇔ ω ∈ Kp (E), that is, Gino knows
that some event has occurred if and only if Polly knows that the event has
occurred.
(e) Consider the event {5, 6}. When ω = 5, {5, 6} is public because Pg ({5, 6}) =
Pp ({5, 6}) = {5, 6}. Moreover, {5, 6} ⊆ {5, 6, 7, 8}, so by theorem 1.3 in the
class notes {5, 6, 7, 8} is common knowledge at ω = 5. E is also a public event.

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 2. (a) If the true state of the world is 7,8, or 9, then Gino knows that the true state
of the world is 7,8, or 9 and thus that the true state of the world is not 3 or
4. Formally 3 ∈ / Pg ({7, 8, 9}) and 4 ∈
/ Pg ({7, 8, 9}), so if the true state of the
world is 7,8, or 9 then Gino assigns probability 0 to both states 3 and 4. If the
true state of the world is 4,5, or 6, then Gino cannot distinguish which state
is the true state and so by Bayes’ rule (and the fact that his prior probability
is that all states are equally likely) he assigns each state an equal probability
of 1/3. In particular, he assigns state 4 probability 1/3, and so he assigns the
event {3, 4} probability 1/3. Likewise, if the true state of the world is 1,2, or
3 then Gino assigns state 3 probability 1/3 and so he assigns the event {3, 4}

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probability 1/3.

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(b) Polly’s new possibility partition is {{1, 2, 3, 4}, {5, 6}, {7, 8}, {9}}. Given this

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probability partition, if the true state of the world is 1,2,3, or 4, then Polly

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knows that one of 1,2,3 or 4 is the true state but does not know which, so
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by Bayes’ rule she assigns equal probability to all events. In particular, she
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assigns probability 1/4 to each of 3 and 4, so she assigns probability 1/2 to the
event {3, 4}. If the true state of the world is 5,6,7,8, or 9 then Polly knows that
neither 3 or 4 is the true state and so she assigns the event {3, 4} probability
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0.
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(c) Gino’s new possibility partition is {{1, 2, 3}{4}{5, 6}{7, 8, 9}}. Now, if the true
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state is 1,2, or 3, then Gino assigns probability 1/3 to state 3, and thus he
assigns probability 1/3 to the event {3, 4}. If the true state is 4 then Gino
knows that the true state is 4, so he assigns probability 1 to the event {3, 4}.
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If the true state is 5,6,7,8 or 9 then Gino knows that the true state is not 3 or
4, and so he assigns zero probability to the event {3, 4}.
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(d) Polly’s new possibility partition is {{1, 2, 3}{4}{5, 6}{7, 8}{9}}. For E =
{3, 4}, we now have Pg (E) = Pp (E) and Kp (E) = Kg (E), so both Polly and
Gino have the same posterior probability belief for the event {3, 4}.
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(e) For all x, the events Pg (Gino assigns probability x to F), Pp (Gino assigns probability x to F)
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and (Gino assigns probability x to F) are the same. The same is true if we
replace ”Gino” with ”Polly” in the statements above. So these events are all
public, and so they are common knowledge at all ω.
(f) In the possibility partition in (a), every state ω ′ is reachable from every other
state ω. This implies that the only event that is common knowledge is the
trivial event Ω. No player has the same probability distribution over all states
in Ω, so no player’s posterior probability for F or any other non-trivial event
is common knowledge at any state.
(g) The sequence is: Gino: 1/3; Polly: 1/2; Gino: 1/3; Polly; 1/3. If the game
continues, then each players announces 1/3 on every turn thereafter.

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 3. (a) The meet of these two sets is the trivial partition {0, 1, 2, 3, 4, 5, 6, 7, 8, 9, 10, 11}.
(b) The partitions in this case are P1 = {{0, 1}, {2, 3}, {4, 5}, {6, 7}, {8, 9}, {10, 11}}
and P2 = {{0, 1, 2, 3}, {4, 5, 6, 7}, {8, 9, 10, 11}}. The meet is {{0, 1, 2, 3}, {4, 5, 6, 7}, {8, 9, 10, 11}
4. (a) The new partitions are PA = {{1, 2, 4}, {3}, {5}}, PB = {{1, 3}{2, 4}, {5}},
and PC = {{1}, {2, 3, 4}, {5}}.
(b) We can write the new posterior probabilities in the following table:
State Alice Beatrice Carol Average
1 2/3 1 1 8/9

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2 2/3 1/2 2/3 11/18

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3 1 1 2/3 8/9

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4 2/3 1/2 2/3 11/18

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5 0 0 0 0

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The new partitions are PA = {{1}, {2, 4}, {3}, {5}}, PB = {{1, 3}{2, 4}, {5}},
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and PC = {{1}, {2, 4}, {3}, {5}}.
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(c) The new posterior probabilities are
State Alice Beatrice Carol Average
1 1 1 1 1
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2 1/2 1/2 1/2 1/2

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3 1 1 1 1
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4 1/2 1/2 1/2 1/2

5 0 0 0 0
The new partitions are the same as the partitions in part b, namely PA =
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{{1}, {2, 4}, {3}, {5}}, PB = {{1, 3}{2, 4}, {5}}, and PC = {{1}, {2, 4}, {3}, {5}}.
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(d) Consensus is reached after the second announcement.

(e) The kibitzer announces 11/18, then 8/9, then 1, and if the game continues the
kibitzer will continue to announce 1 forever.
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(f) No, because Beatrice remains unsure whether the true state is 1 or 3.
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(g) After the kibitzer’s first announcement, the event F = {1, 2, 3, 4} is a public
event. Moreover, the event F is the same as the event that 5 is not the true
state of the world. So this is common knowledge after the kibitzer’s first
announcement.
(h) This becomes common knowledge after the second announcement,when {2, 4}
is an element of every player’s probability partition.
(i) Once consensus is reached {1, 3} and {2, 4} are public events, and so these events
are common knowledge when the occur. The fact that one of these events
is common knowledge serves to pin down the probability of F as common
knowledge as well.

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 5. For the first part of the question, suppose that there are two states of the world and
suppose that the two players put a common prior of 1/2 on each state. Suppose
that the possibility partition is P1 = {{1}, {2}} and P2 = {{1, 2}}. Then player 1
assigns probability 1 to state 1 in state 1, and assigns probability 0 to state 1 in
state 2, while player 2 assigns probabiliy 1/2 to state 1 in both states. So the event
that player 1 and player 2 assign different probabilities to state 1 is just the entire
state space Ω, which is trivially common knowledge.
For the second part of!the question, let the common prior be defined by the function
p : Ω → [0, 1] with ω∈Ω p(ω) = 1. Let E be some event. Then the event that

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player 1 assigns higher probability to the event E than player 2 is the event

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! !

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p(ω ′)
ω ′ ∈E∩P2 (ω) p(ω )
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ω ′ ∈E∩P1 (ω)
{ω| ! > ! }
ω ′ ∈P1 (ω) p(ω ) ω ′ ∈P2 (ω) p(ω )
′ ′

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Let’s call this event F , and suppose that ω0 ∈ F . Then we have
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! !
ω ′ ∈E∩P1 (ω0 ) p(ω ′) ω ′ ∈E∩P2 (ω0 ) p(ω ′ )
! > ! (1)
p(ω ′ ) p(ω ′)
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ω ′ ∈P1 (ω0 ) ω ′ ∈P2 (ω0 )

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Then P1 (ω0 ) and P2 (ω0 ) cannot be the same set; that is, there must exist some ω1
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such that ω1 ∈ P1 (ω0 ) or ω1 ∈ P2 (ω0 ) but ω1 ∈

/ P1 (ω0 ) ∩ P2 (ω0 ). Either ω1 ∈ F or
ω1 ∈
/ F . If ω1 ∈
/ F , then F is not common knowledge. If ω1 ∈ F , then we have
! !
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ω ′ ∈E∩P1 (ω1 ) p(ω ′) ω ′ ∈E∩P2 (ω1 ) p(ω ′ )

! > ! (2)
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ω ′ ∈P1 (ω1 ) p(ω ′ ) ω ′ ∈P2 (ω1 ) p(ω ′)

Combining (1) with (2), we get

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! !
ω ′ ∈E∩(P1 (ω0 )∪P1 (ω1 )) p(ω ′) ω ′ ∈E∩(P2 (ω0 )∪P2 (ω1 )) p(ω )
′
! !
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>
ω ′ ∈P1 (ω0 )∪P1 (ω1 ) p(ω ′ ) ω ′ ∈P2 (ω0 )∪P2 (ω1 ) p(ω )
′

Thus, P1 (ω0 ) ∪ P1 (ω1 ) and P2 (ω0 ) ∪ P2 (ω1 ) cannot be the same set, so there is
some ω2 such that ω2 ∈ (P1 (ω0 ) ∪ P1 (ω1 )) or ω2 ∈ (P2 (ω0 ) ∪ P2 (ω1 )) but ω2 ∈ /
(P0 (ω0 ) ∪ P1 (ω1 )) ∩ (P2 (ω0 ) ∪ P2 (ω1 )). As before, either ω2 ∈ F or ω2 ∈ / F . If
ω2 ∈/ F , then F is not common knowledge. If ω2 ∈ F , then we can find ω3 such
that ω3 ∈ / (P1 (ω0 ) ∪ P1 (ω1 ) ∪ P1 (ω2 )) ∩ (P2 (ω0 ) ∪ P2 (ω1 ) ∪ P2 (ω2 )), and so on. This
process cannot continue forever, because Ω is finite. Therefore, we will eventually
find some ωi ∈ / F . Since ωi ∈ Pj1 (Pj2 (Pj3 (...(Pjn ω0 )))) for some sequence {jn }, F is
n! ot common knowledge.

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 !
6. As above, let the common prior be defined by p : Ω → [0, 1] such that ω∈Ω p(ω) =
1. Let L be a lottery, that is, let L be associated with the function f : Ω → R,
where f (ω) is the prize from the lottery in state ω. Then the event that player i
believes that the expectation of the lottery is greater than η is

" p(ω ′)
{ω| ! f (ω ′) > η}
ω ′ ∈Pi (ω)
ω ∈Pi (ω)
′′ p(ω ′′ )

Call this event Ei . Then the event that player 1 believes that the expectation of the
lottery is greater that η while player 2 believes that the expectation is less that η is

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{ω|ω ∈ E1 and ω ∈
/ E2 }

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Let’s call this event F . Suppose that ω0 ∈ F . Then we have

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p(ω ′) p(ω ′ )
! f (ω ′) > ! f (ω ′ ) (1)
ω ′′ ∈P1 (ω0 ) p(ω ) ω ′′ ∈P2 (ω0 ) p(ω )
ω ′ ∈P1 (ω0 ) ′′ ω ′ ∈P2 (ω0 ) ′′
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Then P1 (ω0 ) and P2 (ω0 ) cannot be the same set, so as in problem 5 there exists ω1
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such that ω1 ∈ P1 (ω0 ) or ω1 ∈ P2 (ω0 ) but ω1 ∈

/ P1 (ω0 ) ∩ P2 (ω0 ). Either ω1 ∈ F or
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ω1 ∈
/ F . If ω1 ∈
/ F , then F is not common knowledge. If ω1 ∈ F , then we have

" p(ω ′) " p(ω ′ )

! f (ω ′) > ! f (ω ′ ) (2)
p(ω ′′ ) p(ω ′′)
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ω ′ ∈P1 (ω1 ) ω ′ ∈P2 (ω1 )

ω ′′ ∈P 1 (ω1 ) ω ′′ ∈P 2 (ω1 )
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Combining (1) and (2), we get

" "
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p(ω ′ ) p(ω ′ )
! f (ω ′ ) > ! f (ω ′ )
ω ′ ∈P1 (ω0 )∪P1 (ω1 ) p(ω ′′) ω ′ ∈P2 (ω0 )∪P2 (ω1 ) p(ω ′′)
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ω ′′ ∈P 1 (ω0 )∪P1 (ω1 ) ω ′′ ∈P 2 (ω0 )∪P2 (ω1 )

It follows that P1 (ω0 ) ∪ P1 (ω1 ) and P2 (ω0 ) ∪ P2 (ω1 ) cannot be the same set, so
there exists ω2 such that ω2 ∈ P1 (ω0 ) ∪ P1 (ω1 ) or ω2 ∈ P2 (ω0 ) ∪ P2 (ω1 ) but ω2 ∈ /
(P1 (ω0 ) ∪ P1 (ω1 )) ∩ (P2 (ω0 ) ∪ P2 (ω1 )). Either ω2 ∈ F or ω2 ∈ / F . If ω2 ∈
/ F,
then F is not common knowledge. If ω2 ∈ F , then we can find ω3 such that
ω3 ∈/ (P1 (ω0 ) ∪ P1 (ω1 ) ∪ P1 (ω2 )) ∩ (P2 (ω0 ) ∪ P2 (ω1 ) ∪ P2 (ω2 )), and so on. As in
problem 5, this process must end eventually because Ω is finite, so we will eventually
find ωi ∈/ F , which shows that F is not common knowledge.

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