Lecture #19

GAME THEORY
NON-COOPERATIVE GAME THEORY
There are two broad approaches to decision problem analysis using game theory. The
distinction lies between cooperative and non-cooperative games.
This distinction does not mean that agents necessarily cooperate in cooperative game
theory nor does it mean that agents necessarily do not cooperate in non-cooperative
game theory.
What is the difference then?
Cooperative means that the players can write binding contracts on their actions. For
example, in cooperative game theory, players can commit to actions, which when
they have to be taken, possibly end up being against that players interests at that
point in time.
For instance, a player may commit to becoming a member of a coalition that is bound
via contract to behave a certain way in a given state of the worldonce that state of
the world presents itself (if it ever does) the coalition is obligated to act as they said
they would, even if there are better payoffs from another course of action.
By contrast, non-cooperative game theory promises no such commitment to future
actions. When a set of moves results in a players turn to decide upon a move
going forward, the player is not constrained by any prior commitments and will
decide their move based on their best personal outcome.
We will only concern ourselves with non-cooperative game theory in this course.
There are two distinct ways of representing non-cooperative games.
EXTENSIVE FORM GAMES
A game in extensive form provides us with a way of describing:
[1] Who is involved?
[2] The rules of the game (i.e. who moves when? what do they know? what moves
are possible?),
[3] The outcomes (i.e. what happens? (a physical outcome)),
[4] The payoffs.
Definition:
A game tree, , is a finite collection of nodes, called vertices, connected by lines,
called arcs, so as to form a figure that is connected (i.e. there exists a set of arcs
connecting any one vertex to another) and contains no simple closed curves (i.e.
there does not exist a set of arcs connecting a vertex to itself).
Is this a game tree?
Circle YES or NO
As per our definition, this
diagram would not be a game
tree. This is due to the fact
that the figure is not
connectedthe set of arcs
does not connect any one
vertex to another.
Is this a game tree?
Circle YES or NO
As per our definition, this diagram
would not be a game tree. This is
due to the fact that the figure, while
connected, contains a simple
closed curve (there does exist a set
of arcs that connect some vertices
to themselves).
Is this a game tree?
Circle YES or NO
As per our definition, this diagram
would be a game tree. This is due to
the fact that the figure is connected
and does not contain a simple closed
curve (there does not exist a set of
arcs that connect some vertices to
themselves).
We can further assert that a game tree has a distinguished node or root; this is
where the game starts. Now, lets consider some examples to illustrate the
concepts of information sets and perfect recall.
Joey
1
umbrella no umbrella
rain rain no rain no rain
Probabiltiy Distribution
nature nature
Chandler
1
Chandler
2
a a a a b b b b
() () () () () () () ()
Joey
1
umbrella no umbrella
rain rain no rain no rain
Probabiltiy Distribution
nature nature
Chandler
1
Chandler
2
a a a a b b b b
() () () () () () () ()
In this case, Chandler knows whether Joey chose to bring his umbrella or not but he
doesnt know whether it is raining or not raining.
INFORMATION SETS
Joey has one information set (Joey
1
) and one move or decision to make (bring an
umbrella or not).
Chandler has two information sets. If it is true that Joey has his umbrella then
Chandler is at information set Chandler
1
. If Joey forgot his umbrella then Chandler is
at information set Chandler
2
. He also only has one move or decision to make (a or b),
yet he does not know if it is raining or sunny (i.e. he doesnt know which vertex he is
at in each information set).
Now, what does this game tree look like if Chandler does not know if Joey has his
umbrella but he does know whether its raining or not raining?
Joey
1
umbrella no umbrella
rain rain no rain no rain
Probabiltiy Distribution
nature nature
Chandler
1
Chandler
2
a a a a b b b b
() () () () () () () ()
In this case, Chandler knows if it is raining or not (rain is part of information set 1
and no rain is part of information set 2) but he isnt sure whether Joey has his
umbrella today (information set 1 is where its raining but he doesnt know which
node he is at in the information set, thus he doesnt know if Joe has his umbrella or
not).
PERFECT VS IMPERFECT INFORMATION
Definition:
An extensive form game is said to be a game of perfect information if all information
sets are singletons (i.e. players can identify exactly which node they are at when
making a move/decision).
If the information sets are not all singletons, it is a game of imperfect information.
STRATEGIES
Definition:
A pure strategy for each player i {1,2,,n} is a function
i
that associates every
information set with one of the available choices.
Lets call the pure strategy sets
i
. For the following game (in extensive form) the pure
strategy sets for player 1 and player 2 are:

1
= {(L, 5), (L, 10), (R, 5), (R, 10)}

2
= {(u, a, b), (u, a, a), (u, b, b), (u, b, a), (d, a, b), (d, a, a), (d, b, b), (d, b, a)}
Player 1
1
L R
u u d d
Player 2
1
Player 1
2
Player 2
2
5 a a 5 10 b b 10
(1)
(7)
(6)
(4)
(5)
(2)
(4)
(1)
(3)
(3)
(2)
(5)
(7)
(6)
(8)
(8)
Player 2
3
The pure strategy sets
i
on the previous slide represent all of the potential selections
that either player could potentially face in the game.
For now, think about one likely outcome to this game. Well investigate this later when
we discuss Pure strategy Nash equilibria, in the normal or strategic form games.
STRATEGIC OR NORMAL FORM GAMES
We should notice that the extensive form of a game is aptly named. The information
that is given in a game tree is extensive. Do we need this much information?
Sometimes not!
Often games of this sort are summarized in a payoff matrix or what we call the
strategic form of the game.
Lets put the above extensive form game into strategic form (for practice).
We should notice that this game is relatively large in its strategic form.
1 2 (u, a, b) (u, a, a) (u, b, b) (u, b, a) (d, a, b) (d, a, a) (d, b, b) (d, b, a)
(L, 5) (1, 7) (1, 7) (1, 7) (1, 7) (3, 3) (3, 3) (3, 3) (3, 3)
(L, 10) (2, 5) (2, 5) (2, 5) (2, 5) (4, 1) (4, 1) (4, 1) (4, 1)
(R, 5) (6, 4) (5, 2) (6, 4) (5, 2) (7, 6) (7, 6) (8, 8) (8, 8)
(R, 10) (6, 4) (5, 2) (6, 4) (5, 2) (7, 6) (7, 6) (8, 8) (8, 8)
In this payoff matrix, player 1s pure strategies are the rows and player 2s pure
strategies are the columns.
The payoffs are recorded in the form (row, column)so a payoff pair in this matrix
such as (1, 7) means that player 1 gets 1 util of happiness and player 2 gets 7
utils of happiness from the games outcome if those pure strategies are played.
Keep thinking about a likely solution to this game.
SOLUTION CONCEPTS
THE ELIMINATION OF (WEAKLY) DOMINATED STRATEGIES
A particular pure strategy is strictly dominated if the payoffs to a player from
playing that pure strategy are always less than if the player chose an alternative
strategy. In our example above there are many strictly dominated strategies.
Can you see any?
1 2 (u, a, b) (u, a, a) (u, b, b) (u, b, a) (d, a, b) (d, a, a) (d, b, b) (d, b, a)
(L, 5) (1, 7) (1, 7) (1, 7) (1, 7) (3, 3) (3, 3) (3, 3) (3, 3)
(L, 10) (2, 5) (2, 5) (2, 5) (2, 5) (4, 1) (4, 1) (4, 1) (4, 1)
(R, 5) (6, 4) (5, 2) (6, 4) (5, 2) (7, 6) (7, 6) (8, 8) (8, 8)
(R, 10) (6, 4) (5, 2) (6, 4) (5, 2) (7, 6) (7, 6) (8, 8) (8, 8)
[1] (L, 5) is strictly dominated by (L, 10) for Player 1
[1]
[2] (L, 10) is strictly dominated by (R, 5) and (R, 10) for Player 1
[2]
[3] (u, a, a) and (u, b, a) are weakly dominated by (u, a, b) for Player 2
[3] [3]
[4] (d, a, b) and (d, a, a) are weakly dominated by (d, b, a) for Player 2
[4] [4]
1 2 (u, a, b) (u, a, a) (u, b, b) (u, b, a) (d, a, b) (d, a, a) (d, b, b) (d, b, a)
(L, 5) (1, 7) (1, 7) (1, 7) (1, 7) (3, 3) (3, 3) (3, 3) (3, 3)
(L, 10) (2, 5) (2, 5) (2, 5) (2, 5) (4, 1) (4, 1) (4, 1) (4, 1)
(R, 5) (6, 4) (5, 2) (6, 4) (5, 2) (7, 6) (7, 6) (8, 8) (8, 8)
(R, 10) (6, 4) (5, 2) (6, 4) (5, 2) (7, 6) (7, 6) (8, 8) (8, 8)
[1] (L, 5) is strictly dominated by (L, 10) for Player 1
[1]
[2] (L, 10) is strictly dominated by (R, 5) and (R, 10) for Player 1
[2]
[3] (u, a, a) and (u, b, a) are weakly dominated by (u, a, b) for Player 2
[3] [3]
[4] (d, a, b) and (d, a, a) are weakly dominated by (d, b, a) for Player 2
[4] [4]
[5] Now, we can (given these first four elimination) dispose of (u, a, b) and (u, b,
b) since they are now, in their reduced form, strictly dominated by whats left of
(d, b, b) and (d, b, a) for both Players.
[5] [5]
We cannot reduce the pure strategies any further. So the pure strategies that
result are:
((R, 5), (d, b, b)) ((R, 10), (d, b, b))
((R, 5), (d, b, a)) ((R, 10), (d, b, a))
So, successive elimination of (weakly) dominated strategies
[i] may not yield a unique outcome,
[ii] requires common knowledge, and
[iii] is particularly dubious for weakly dominated strategies (after all, the player is
indifferent).
Now lets do through another exercise using the successive elimination of (weakly)
dominated strategies
Consider a two player game in strategic form given as:
1 2 (L, L) (R,R) (L, R) (R, L)
L (2, 0) (2, -1) (2, 0) (2, -1)
R (1, 0) (3, 1) (3, 1) (1, 0)
Take a couple of minutes to eliminate all of the (weakly or strictly) dominated
strategies. Does this process result in a unique pure strategy for each player?
(Cross the dominated strategies out in the matrix above).
RATIONALIZABLE STRATEGIES AND NASH EQUILIBRIA
Definition:
A strategy, s, is a best response for player i to his rivals strategies if the payoff to
player i from playing s is greater than the payoff to player i from any other strategy
(taking the rivals strategies as given).
Definition:
A Nash Equilibrium in pure strategies is a set of strategies, one for each player, such
that each players strategy maximizes their payoff taking the other players strategies
as given (i.e. mutual best response).
Lets see how this worksconsider the following two person game in strategic form:
1 2 L C R
T (4, 4) (0, 2) (0, 3)
M (2, 0) (1,1) (-1, 0)
B (3, 0) (0, -1) (0, 0)
To find the pure strategy Nash equilibriums (there are two) we need to find the
mutual best responses in this matrix.
How do we find these mutual best responses?
First, lets take as given that player 1 will choose his pure strategy T. What is player
2s best response to this information?
When player 1 plays T, then player 2 can choose L, C, or R with his payoffs being 4
for L, 2 for C, and 3 for R.
Clearly, when player 1 plays T the best response from player 2 is to play L.
Now, we need to check if T is player 1s best response if player 2 plays L.
When player 2 plays L, then player 1 can choose T, M, or B, with payoffs being 4 for T,
2 for M, and 3 for B. So when player 2 plays L the best response from player 1 is to
play T.
To summarize, if player 1 plays T then player 2s best response is to play L(T, L).
if player 2 plays L then player 1s best response is to play T(T, L).
So the pure strategy pair (T, L) is a mutual best response and as such is a pure
strategy Nash equilibrium.
ONE DOWN, ONE TO GO!
Now take as given that player 1 will choose his pure strategy as M. What is player
2s best response to this?
Hopefully, we can see that when player 1 chooses M then player 2s best response
is C. Now we need to check to see if M is a best response to Player 2 choosing
Cand it is!
So the pure strategy pair (M, C) is a mutual best response and as such is a pure
strategy Nash Equilibrium.
TWO DOWN, ZERO TO GO!
Take a couple of seconds to check the last row and we can see that there is not a
mutual best response (payoff ties are not strictly best responses).
MATCHING PENNIES
This game sets up as follows:
Two friends take a penny in their hand and place it either heads up or tails up.
They have agreed to payoffs as follows:
If, when they open their hands, the pennies are the same side up then player 1 gets
a dollar from player 2.
If, when they open their hands, the pennies show opposite sides up then player 2
gets a dollar from player 1.
Lets represent this game in both the extensive form and the normal form
1 2 H T
H (1, -1) (-1, 1)
T (-1, 1) (1, -1)
Player 1
1
H T
H H T T
Player 2
1
(1)
(-1)
(-1)
(1)
(-1)
(1)
(1)
(-1)
Take a minute to find the pure strategy Nash
equilibrium of this game
ANSWER: There arent any!!!!!
(more in awhile).
BATTLE OF THE SEXES
Romeo and Juliet are separated by many miles with no way of communicating (there
were no Blackberry 10s in the 18th century!).
The last time that they saw each other they agreed to go out on Saturday night but
they could not agree to which event they would attend before they were separated.
Juliet wants to go to the Manchester United game (soccer = sports, denoted as S) but
she knows that Romeo wants to go to see the young Rolling Stones (music, denoted
as M).
Of course, Romeo and Juliet are quite taken with each other and would prefer to be
together than to be separate, however, each of them would derive more pleasure
by being together at the event that they prefer.
For example, Romeo wants to be with Juliet listening to music (his biggest payoff)
and Juliet wants to be with Romeo watching the soccer match (her biggest payoff).
Romeo and Juliet must simultaneously choose (without having agreed upon where
to meet) which venue to arrive at.
Lets represent this game in both the extensive form and the normal form
Romeo Juliet M S
M (50, 20) (5, 5)
S (0, 0) (20, 50)
Romeo
1
M S
M M S S
Juliet
1
(50)
(20)
(0)
(0)
(5)
(5)
(20)
(50)
What are the pure strategy Nash Equilibria of
this game?
If Romeo chooses M then Juliets best response is M. Since M is also Romeos best
response when Juliet chooses M we have a mutual best response. Thus, (M, M) is a
pure strategy Nash Equilibrium.
If Romeo chooses S then Juliets best response is S and by inspection we can see
this is also Romeos best response to Juliet picking S. Thus, (S, S) is also a pure
strategy Nash Equilibrium.
Great! Now they have no problem, right?
WRONG!
The Nash equilibria only happen if one of the two players decides to go to the event
that they dont want to go to.
Suppose that Romeo decides that he simply cannot miss seeing young Mick and
believes that Juliet will settle for music just so that they can be together
At the same time, suppose that Juliet figures that Romeo is a sensitive fellow and
because he knows how much she wants to see the soccer match so she goes to the
sports venue expecting that he will meet her there
If this scenario played itself out we would have the outcome (M, S) and the payoffs
would be (5, 5). Both of the players are where they want to bebut without each
others company.
SELFISH OUTCOME
Interestingly, the selfish outcome described above is not the worst outcome
Suppose that Romeo IS the sensitive and considerate fellow that Juliet believed
him to be and he decides to go to the soccer match simply to be with her (i.e.
sacrifices his musical experience).
At the same time, suppose Juliet DID decide to settle for a night of music because
she knows how much it means to Romeo
If this scenario played itself out we would have the outcome (S, M) and the payoffs
would be (0, 0). Both of the players are where they do not want to beAND
without each others company.
The SELFLESS OUTCOME ends up resulting in the worst case scenario.
The moral of the story is (Ill let you decide!)
PRISONERS DILEMMA
Two criminals are picked up for shoplifting and immediately separated by the
police (i.e. put into different interrogation rooms) before they can communicate.
The police know but cannot prove that these are the same two crooks that have
robbed seven area banks in the last two months. Now, the police need a
confession from at least one of these gentlemen to close the bank robbery
caseso
The prosecutor goes to each interrogation room and tells each of the crooks that
he is offering both of them the following deal:
If one of you confesses to the bank robberies and the other does not, then the
confessor will get one year in jail and the other will do a twenty-five year term.
If you both confess to the bank robberies then its ten years for each of you.
and, if both of you refuse to confess the evidence that the police have on you for
the shoplifting incident will get you both two year jail termsbut Constable
OMalley tells me that it looks like your partner is about ready to spill the beans
and confess.
What is the outcome? Well, each of the criminals will confess and end up serving
10 years apiece!
If this doesnt make any sense to you, you are not alone
Lets use our knowledge of game theory to see why this sub-optimal outcome
occurs.
Snake
1
Confess Not Confess
Nuckles
1
(-10)
(-10)
(-25)
(-1)
(-1)
(-25)
(-2)
(-2)
Confess
Confess
Not Confess
Not
Snake Nuckles Confess (C) Not Confess (N)
Confess (C) (-10, -10) (-1, -25)
Not Confess (N) (-25, -1) (-2, -2)
[1] So lets consider Nuckles strategies firstIf Snake confesses, then Nuckles is
better off to confess as well (i.e. -10 is much better than -25). If Snake does not
confess, then Nuckles is better off to confess since -1 is better than -2.
This means that Nuckles pure strategy to confess strictly dominates the pure
strategy not to confess!
[2] So now lets consider Snakes strategiesIf Nuckles confesses, then Snake is
better off to confess as well (i.e. -10 is much better than -25). If Nuckles does not
confess, then Snake is better off to confess since -1 is better than -2.
This means that Snakes pure strategy to confess strictly dominates the pure
strategy not to confess!
So, we end up with
Snake Nuckles Confess (C) Not Confess (N)
Confess (C) (-10, -10)** (-1, -25)
Not Confess (N) (-25, -1) (-2, -2)
[1] C strictly dominates N for Nuckles (column N scratched out)
[2] C strictly dominates N for Snake (row N scratched out)
Thus, both of the criminals confess and get 10 year jail terms. Clearly, they would
have been jointly better off if neither of them had confessed (i.e. 2 years each)but
without the ability to communicate both of the prisoners decide to guard against the
worst outcome.
[1]
[2]
HOMEWORK
[1] Find all of the pure strategy Nash Equilibria for the following strategic form game:
1 2 U C D
L (-8, 7) (0,9) (3, 1)
M (0, 5) (-1, 2) (4, 6)
R (1, 8) (-3, 7) (1, 2)
[2] Draw both the extensive form and normal form representations of the following game:
ROCK, PAPER, SCISSORS
Two people, Ed and Jake, are trying to decide who gets to date Bella on Friday night. They
agree to use the rock, paper, scissors game to decide (with the winner getting the date).
For convenience, represent a win with a payoff of 1 and a loss with a payoff of -1. If there is
a tie the payoff is (0, 0). Are there any pure strategy Nash equilibrium?
Here are the rules of the game:
Rock smashes Scissors Rock wins over Scissors
Paper covers Rock Paper wins over Rock
Scissors cuts Paper Scissors wins over Paper
Denote Rock = R, Paper = P, Scissors = S
Both players reveal their choice simultaneously. Note that the normal form game is a three
by three matrix and the extensive form game has nine terminal nodes (i.e. payoffs).