Sequential Games & Backwards

Induction
Solving a sequential game is easy. We begin with decisions that
lead only to terminal nodes of the game, choose the action that
maximizes the payo of the player choosing at that node, and then
work backwards through the earlier nodes of the game.
Each player can predict what other players will do at subsequent
nodes, so he/she can predict the exact consequences of his/her
possible moves before the move. For earlier nodes, we substitute
the eventual outcome that will be reached for each move using the
anticipated future moves of the other players. This is called
backwards induction.

Example (Charlie Brown vs. Lucie): Suppose Lucies top

choice is Charlie Brown falling down, next choice is nothing
happening, and last choice is Charlie Brown kicking the ball.
Charlie Brown has the opposite ranking. Then we can solve the
sequential game played by them using backwards induction:

sCharlie Brown falls down

Pull the

ball

Accept
CB

@
@
Let him@kick
@
@sCharlie Brown kicks the ball

@
@
Reject @
@
@sNothing happens

Example:

A
3

L
2
U

@
@
@
D@
@
@ 2

s (2,1,2)

@
@
B @s (3,3,1)

@
R@@s (2,0,2)

s (1,3,2)

@
r@@

X
3

W
1

@
@
Y@
1

s (1,2,1)

@
@s (0,3,2)
Z@
w s (2,3,0)
@
z@@s

(1,2,1)

Example (3-Level Centipede):

(3,1)
s
S
1

(2,3)
s
S

(6,2)
s
S

(4,6)
s
S

(12,4)
s
S

(8,12)
s
S

s (24,8)

Example: Three members of a committee should choose among

four candidates A,B,C,D. The procedure is such that
member 1 vetoes a candidate,
observing this member 2 vetoes another, and
observing members 1 and 2, member 3 vetoes a third candidate.
The surviving candidate is elected. The preferences of the members
(from best to worst) are as follows:
Member 1: C B D A
Member 2: B C A D
Member 3: A B C D
Lets nd the elected candidate using backwards induction.

(rD
(
C
(
(
 3 hhh

hrC

B
D

(rD

(
B
(
C

(
2 PP
3 hhh
D hrB
PP

(rC
(
B
D PP
(
P3(

hhh
C hrB

(rD
C((

(
h
 3 hh
A


hrC

A
D

(rD

A((


(
h
3 hh
 2 PPPC
hrA


D

PP


B
(rC
A((
D
P
P3(

h
h hr


A
C h

1

H
J HH
(rD
(
B
(
(
 3 hhh
J
HH

hrB

A
C
D

J
HH

(rD

(
A
(

(
H
J
2 PP B
3 hhh
D hrA
PP
J
(rB
(
A
D PP
(
P3(
DJ
hhh
B hrA
J
J
(rC
B((
J
(
h
 3 hh

hrB

A
J
C


(rC

A((
J
(
J2
h
3 hh
PP B
C hrA
PP
(rB
(
C PP
P3h
(A(
hh
B hrA

Example (Voting for a Pay Raise): Three legislators are

voting on whether to give themselves a pay raise. All three want
the pay raise; however each face a small cost in voter resentment
c > 0. The benet for the raise is b > c. They vote in the order
1-2-3. What is the outcome obtained by backwards induction?
y((
(r(b-c,b-c,b-c)
(
hr(b-c,b-c,b)
 3 hnhh

Y



 2 PPP

PP

y((
(r(b-c,b,b-c)

Y
N PP (

3 hhh
hr(-c,0,0)

n


1H
HH
y((
(r(b,b-c,b-c)
(
H
 3 hnhh
hr(0,-c,0)

Y
N HH

HH 
2 PP
PP
y((
(r(0,0,-c)
N PPP (
3 hhh
n hr(0,0,0)

s (2,1,2)

Example (Tricky!):
3

L
2
U

@
@
@
D@
@
@ 2

@
B @s (3,3,1)

@
@
R @s (2,0,2)

s (3,2,2)

@
r@@

X
3

@
Y@@

s (1,2,1)

@
@s (0,3,2)
Z@
w s (2,3,0)

@
z@@s

(1,2,1)