Game Theory Lecture Notes Long v1

The Nash Equilibrium
Strategic and Extensive Form
Information Sets
Types of Information
Introduction to Game Theory

Gregory Wheeler
CENTRIA
Center for Artificial Intelligence Research

Universidade Nova de Lisboa, Portugal
Lecture 2
Nash Equilibrium & Information
Summary
Information Sets
elements of a game
Rules of a Game
Descriptions
players
strategies
actions
equilibria
payoffs
outcome
information
Types
(non)cooperative
games
strategic and
extensive form
(in)complete
information
(a)symmetric
information
Summary
Information Sets
elements of a game
Rules of a Game
Descriptions
players
strategies
actions
equilibria
payoffs
outcome
information
Types
(non)cooperative
games
strategic and
extensive form
(in)complete
information
(a)symmetric
information
Summary
Information Sets
Summary
limited applicability thus far
Very few games have a dominant-strategy equilibrium.

The vast majority doesnt even have iterated-dominance equilibria.
The Nash Equilibrium is the most important and most
widespread equilibrium concept.
Information Sets
boxed pigs game

Food!
cc
cc
A button push costs a pig 2 units

&
10 units of food are dispensed
Summary
Information Sets
boxed pigs game

Food!
cc
cc
Big Pig:
If Big gets to the dispenser first, Big gets 9 Small gets 1.
Small Pig:
If Small is at the dispenser first, Small gets 4 Big gets 6.
If both arrive at the same time, Small gets 3 Big gets 7.
Summary
Information Sets
boxed pigs game

Food!
cc
cc
Big Pig:
If Big gets to the dispenser first, Big gets 9 Small gets 1.
Small Pig:
If Small is at the dispenser first, Small gets 4 Big gets 6.
If both arrive at the same time, Small gets 3 Big gets 7.
Example: (Press, Press) = 5 for Big, 1 for Small
5 = 10 dispensed, - 2 for effort, -3 for Small.
1 = 10 dispensed, - 2 for effort, -7 for Big.
Summary
Information Sets
Summary
boxed pigs
Big Pig
Press
Wait
Small
Press
(5, 1)
(9, 1)
Pig
Wait
(4, 4)
(0, 0)
No dominant-strategy equilibrium
Because what Big chooses depends on what he thinks the Small will
choose.
If Big thinks Small will press, Big will wait for the food.
If Big thinks Small will wait, Small will press the button.
(Press, Wait) is an iterated-dominant dominance equilibrium.
Information Sets
Summary
boxed pigs
Big Pig
Press
Wait
Small
Press
(5, 1)
(9, 1)
Pig
Wait
(4, 4)
(0, 0)
choose.
Information Sets
Summary
boxed pigs
Big Pig
Press
Wait
Small
Press
(5, 1)
(9, 1)
Pig
Wait
(4, 4)
(0, 0)
choose.
Information Sets
Summary
boxed pigs
Big Pig
Press
Wait
Small
Press
(5, 1)
(9, 1)
Pig
Wait
(4, 4)
(0, 0)
choose.
Information Sets
Summary
nash equilibrium
Definition
a) The strategy profile s is a weak Nash equilibrium if no
player has incentive to deviate from his strategy given that the
other players do not deviate. Formally,
i, (si , si
) (si0 , si
), si0 .
b) A strategy profile strategy profile s is a strong Nash

equilibrium if no player is indifferent between his equilibrium
strategy and some other strategy. Formally,
i, (si , si
) > (si0 , si
), si0 .
Information Sets
boxed pigs
Big Pig
Press
Wait
Small
Press
5, 1
9 , 1
Pig
Wait
4, 4
0, 0
Test for Nash equilibrium

If Big picks Press, Small picks Wait.
If Small picks Wait, Big picks Press. (Wait, Press) is Nash
If Big picks Wait, Small picks Wait.
If Small picks Press, Big picks Wait.
(Wait, Press) is also unique.
Summary
Information Sets
boxed pigs
Big Pig
Press
Wait
Small
Press
5, 1
9 , 1
Pig
Wait
4, 4
0, 0

Summary
Information Sets
boxed pigs
Big Pig
Press
Wait
Small
Press
5, 1
9 , 1
Pig
Wait
4, 4
0, 0

Summary
Information Sets
boxed pigs
Big Pig
Press
Wait
Small
Press
5, 1
9 , 1
Pig
Wait
4, 4
0, 0

Summary
Information Sets
boxed pigs
Big Pig
Press
Wait
Small
Press
5, 1
9 , 1
Pig
Wait
4, 4
0, 0

Summary
Information Sets
boxed pigs
Big Pig
Press
Wait
Small
Press
5, 1
9 , 1
Pig
Wait
4, 4
0, 0

Summary
Information Sets
Summary
remarks on nash equilibria

Every dominant-equilibrium strategy is a Nash equilibrium strategy.
But not every Nash-equilibrium strategy is a dominant-equilibrium
strategy.
A Nash strategy only needs to be a best response to the other Nash
strategies, not to all possible strategies.
If a strategy is dominant, it is a best strategy to any strategies the other
players pick, including their equilibrium strategies.
The difference between Nash- and dominant-equilibria is illustrated by
The Modellers Dillema.
Information Sets
modellers dilemma
Row
Deny
Confess
Column
Deny
Confess
(0, 0)
(10, 0)
(0, 10) (8, 8)
No Dominant Strategy
Notice that (Deny, Deny ) is (0,0) rather than (-1,-1).
Summary
Information Sets
modellers dilemma
Row
Deny
Confess
Column
Deny
Confess
(0, 0)
(10, 0)
(0, 10) (8, 8)
No Dominant Strategy
Notice that (Deny, Deny ) is (0,0) rather than (-1,-1).
Summary
Information Sets
modellers dilemma
Row
Deny
Confess
Column
Deny Confess
0, 0
10, 0
0, 10 -8 , -8
Confess!
There is a weak dominant strategy equilibrium
Confess is a weakly dominant strategy for each player.
So, (Confess, Confess) is an iterated dominance equilibrium
(Confess, Confess) is also a strong Nash equilibrium.
Summary
Information Sets
modellers dilemma
Row
Deny
Confess
Column
Deny Confess
0, 0
10, 0
0, 10 -8 , -8
Confess!
Summary
Information Sets
modellers dilemma
Row
Deny
Confess
Column
Deny Confess
0, 0
10, 0
0, 10 -8 , -8
Confess!
Summary
Information Sets
modellers dilemma
Row
Deny
Confess
Column
Deny Confess
0, 0
10, 0
0, 10 -8 , -8
Be Quiet!
There is another Nash equilibrium: (Deny, Deny )
(Deny, Deny ) is a weak Nash equilibrium.
(Deny, Deny ) is Pareto-superior:
(0,0) is uniformly superior to (-8,-8)
Summary
Information Sets
modellers dilemma
Row
Deny
Confess
Column
Deny Confess
0, 0
10, 0
0, 10 -8 , -8
Be Quiet!
Summary
Information Sets
modellers dilemma
Row
Deny
Confess
Column
Deny Confess
0, 0
10, 0
0, 10 -8 , -8
Be Quiet!
Summary
Information Sets
Summary
battle of the sexes
Man
Prize Fight
Ballet
Woman
Prize Fight Ballet
2,1
0,0
0,0
1,2
Two Nash Equilibria

(Prize Fight, Prize Fight) and (Ballet, Ballet).
Each strategy is Pareto-efficient: no other increases the payoff to
one player without decreasing that of the other.
Remark: The prisoners dilemma has a unique Nash equilibroum but
is not Pareto-efficient.
Information Sets
Summary
battle of the sexes
remarks
Unlike the previous games, the first player to move in Battle of the
Sexes has an advantage. If the woman was first to purchase ballet
tickets, this commitment (investment) would induce the man to go
to the ballet. In many game the player who moves first enjoys a
first-mover advantage.
Information Sets
elements of a game
Rules of a Game
Descriptions
players
strategies
actions
equilibria
payoffs
outcome
information
Types
(non)cooperative
games
strategic and
extensive form
(in)complete
information
(a)symmetric
information
Summary
Information Sets
elements of a game
Rules of a Game
Descriptions
players
strategies
actions
equilibria
payoffs
outcome
information
Types
(non)cooperative
games
strategic and
extensive form
(in)complete
information
(a)symmetric
information
Summary
Information Sets
elements of a game
Rules of a Game
Descriptions
players
strategies
actions
equilibria
payoffs
outcome
information
Types
(non)cooperative
games
strategic and
extensive form
(in)complete
information
(a)symmetric
information
Summary
Information Sets
elements of a game
Rules of a Game
Descriptions
players
strategies
actions
equilibria
payoffs
outcome
information
Types
(non)cooperative
games
strategic and
extensive form
(in)complete
information
(a)symmetric
information
Summary
Information Sets
Summary
learning from another player
All of the games from lecture 1 assumed that the moves were
simultaneous. These are called normal form or strategic

form games.
In sequential move games, the Player 2 acquires information
about Player 1s opening move before he decides to move.

These are called extensive form games
Extensive form games allows players to learn about each
players private information by observing their behavior.
Information Sets
strategic form
Let n be the number of players, k the number of variables in the
outcome vector, p the number of strategy profiles, and q the
number of action profiles.
Definition
a) The strategic form (or normal form) consists of:
1. All possible strategy profiles s 1 , . . . , s p
2. Payoff functions mapping s i onto the payoff n-vector
i (i = 1, . . . , p).
b) The outcome matrix consists of

1. All possible action profiles a1 , . . . , aq .
2. Outcome functions mapping ai onto the outcome k-vector
z i = (i = 1, . . . , q).
Summary
Information Sets
Summary
coordination
electric light game
Alpha Inc. and Omega Corporation are trying to decide whether to
design the electric lamps they sell to use Large light bulbs or Small
light bulbs.
Alpha and Omega will both sell more lamps if they use the same
sized bulbs.
a) (Large, Large) and (Small, Small) are both Nash equilibria.
b) Suppose that (Large, Large) Pareto-dominates (Small, Small).
Alpha and Omega would then benefit from coordinating on (Large,
Large), since they have a shared ranking of equilibria.
Information Sets
Summary
follow the leader

The electric light game is normal form. Suppose now that Alpha is
allowed to go first, thus committing to a particular bulb size. The
new game, follow the leader, has an output matrix that is
identical to the electric light game. But its strategic form is
different because Omegas actions are no longer single actions.
The strategy set S for Omega consists of the following 4
strategies:
s1
(If Alpha chose L, choose L; if Alpha chose S, choose L)
s2
(If Alpha chose L, choose L; if Alpha chose S, choose S)
s3
(If Alpha chose L, choose S; if Alpha chose S, choose L)
s4
(If Alpha chose L, choose S; if Alpha chose S, choose S)
Information Sets
follow the leader

We may rewrite the strategy set SAlpha for Omega consists of:
s1
(If Alpha chose L, choose L; if Alpha chose S, choose L)
s2
(If Alpha chose L, choose L; if Alpha chose S, choose S)
s3
(If Alpha chose L, choose S; if Alpha chose S, choose L)
s4
(If Alpha chose L, choose S; if Alpha chose S, choose S)
as:
(L|L, L|S),
(L|L, S|S),
(S|L,
L|S),
(S|L, S|S)
Summary
Information Sets
Summary
follow the leader
Omega
Alpha
1 :Large
2 :Small
1
L|L, L|S
2 , 2 (E1 )
1, 1
2
L|L, S|S
2 , 2 (E2 )
1, 1
3
S|L, L|S
1, 1
1, 1
Payoffs to: (Alpha, Omega).

Best-response payoffs are boxed; underlined, if weak.
Equilibrium
E1
E2
E3
Strategies
{Large, (L|L, L|S)}
{Large, (L|L, S|S)}
{Small, (S|L, S|S)}
Outcome
Both pick Large
4
S|L, S|S
1, 1
1 , 1 (E3 )
Information Sets
follow the leader

Follow-the-leader: extensive form
ll
a
Sm
ll
a
Sm
Lar
ge
Large
(-1,-1)
Small
(-1,-1)
Lar
ge
Equilibrium
E1
E2
E3
(1,1)
Strategies
{Large, (L|L, L|S)}
{Large, (L|L, S|S)}
{Small, (S|L, S|S)}
(2,2)
Outcome
Both pick Large
Summary
Information Sets
follow the leader

ll
a
Sm
ll
a
Sm
Lar
ge
Large
(-1,-1)
Small
(-1,-1)
Lar
ge
Equilibrium
E1
E2
E3
(1,1)
Strategies
{Large, (L|L, L|S)}
{Large, (L|L, S|S)}
{Small, (S|L, S|S)}
(2,2)
Outcome
Both pick Large
Both pick Large
Summary
Information Sets
follow the leader

ll
a
Sm
ll
a
Sm
Lar
ge
Large
(-1,-1)
Small
(-1,-1)
Lar
ge
Equilibrium
E1
E2
E3
(1,1)
Strategies
{Large, (L|L, L|S)}
{Large, (L|L, S|S)}
{Small, (S|L, S|S)}
(2,2)
Outcome
Both pick Large
Both pick Large
Both pick Small
Summary
Information Sets
follow the leader

ll
a
Sm
ll
a
Sm
Lar
ge
Large
(-1,-1)
Small
(-1,-1)
Lar
ge
Equilibrium
E1
E2
E3
(1,1)
Strategies
{Large, (L|L, L|S)}
{Large, (L|L, S|S)}
{Small, (S|L, S|S)}
(2,2)
Outcome
Both pick Large
Both pick Large
Both pick Small
Summary
Information Sets
Summary
follow-the-leader order of play

Order of play
1. chooses bulb size to be either Large or Small.
2. chooses bulb size to be either Large or Small.
NB: normal form lays out all possible strategies and then compares their
payoffs. Order of play gives us a better example. Two other ways to
describe a game:
a) extensive form
b) the game tree
Information Sets
Summary
extensive form and the game tree

Definition
a) A node is a point in the game at which some player or Nature
takes an action, or the game ends.
b) A successor to node X is a node that may occur later in the
game if X has been reached.
c) A predessor to node X is a node that must be reached before
X can be reached.
d) A starting node is a node with no successors.
e) An end node or end point is a node with no successors.
f) A branch is one action in a players action set at a particular
node.
g) A path is a sequence of nodes and branches leading from the
starting node to an end node.
Information Sets
extensive form and the game tree

Definition
The extensive form is a description of a game consisting of
1. A configuration of nodes and branches running without any
closed loops from a single starting node to its end nodes.
2. An indication of which nodes belongs to which player
3. The probabilities of Nature uses to choose different branches
at its nodes.
4. The information sets into which each players nodes are
divided
5. The payoffs for each player at each end node.
The game tree is the same as the extensive form except that (5)
is replaced by
50 . The outcomes at each end node.
Summary
Information Sets
follow the leader

Ranked Coordination in extensive form
all
Sm
all
Sm
Large
(-1,-1)
Small
(-1,-1)
Omega's
Information
Set
Lar
ge
Lar
ge
Equilibrium
E1
E2
E3
(1,1)
Strategies
{Large, (L|L, L|S)}
{Large, (L|L, S|S)}
{Small, (S|L, S|S)}
(2,2)
Outcome
Both pick Large
Both pick Large
Both pick Small
Summary
Information Sets
Summary
information sets
How much did the President know, and when did he

know it? Senator Baker, during the Watergate hearings
A games information structure, like the order of its moves, is
often obscured in the strategic form.
Information Sets
Summary
information sets
How much did the President know, and when did he

know it? Senator Baker, during the Watergate hearings
A games information structure, like the order of its moves, is
often obscured in the strategic form.

But to uncover the information structure of a game requires
some technical definitions.
Information Sets
Summary
information sets
Definition
Player is information set i at any particular point of the game
is the set of different nodes in the game tree that he knows might
be the actual node, but between which he cannot distinguish by
direct observation.
Information Sets
Summary
Information sets and Information Partitions

2008
2009
2010
(1,1)
(1,1)
(1,1)
Top
Middle
(1,1)
(1,1)
(1,1)
Lo
we
r
tto
Bo
m
Omega's
Information
set
(1,1)
3
4
(4,4)
(4,4)
(4,4)
(4,4)
3 and 4 are in the same information set (cloud) for Omega, but not
for Alpha.
Information Sets
Summary
facts about information sets
(1) One node cannot belong to two different information sets.
Example
Suppose 3 belonged to {3 , 4 } and {2 , 3 } (unlike the diagram).
Then if the player reached 3 , he wouldnt know whether he was in
{3 , 4 } and {2 , 3 }, which would imply that he was in an information
set {2 , 3 , 4 }.
Information Sets
Summary
(2) If the nodes in one of Omegas information sets are nodes at

which he moves, his action set must be the same at each node.
Example
In the diagram, Omega has the same action set at nodes 3 and 4 .
Because if he had some different action set at 3 (say), he would know
that he is at 3 and his information set would reduce to {3 }.
By similar reasoning, {1 2 } is not an information set because 1 has 3
moves and the others have four moves, even though they both have the
same payoff.
Information Sets
Summary
(3) Rational deductions are not observations
Example
Look at the information set in the diagram. Alpha would clearly choose
Bottom, since the payoff of 8 dominates the payoff of 4. So, Omega
would have a reason to distinguish between 3 and 4 . But deductions
are not observations, so the game tree does not split this information set.
Information Sets
(4) Information sets show the effects of unobserved moves by

Nature.
Example
Suppose that Nature moved before Alpha in the diagram. Omegas
information sets would be depicted the same way.
Summary
Information Sets
Summary
information partition
Definition
Player is information partition is a collection of his information
sets such that:
1. Each path is represented by one node in a single information
set in the partition, and
2. The predecessors of all nodes in a single information set are in
one information set.
Information Sets
Summary
information partition
Information partitions carve up the set of possible nodes into those

that a player can distinguish.
Example
One of Alphas information partitions is ({1 }, {2 }, {3 }, {4 }). The
definition rules out including {} in that partition, because the path
through and 1 would be represented by two nodes. Instead, ({}) is
a separate information partition.
Information Sets
information partitions
Nodes
1
2
3
4
II
III
IV
{
}
{
}
{ }
{1 } {1 } 1 1
{2 } {2 } 2 2
{3 } 3 3 3
{4 } 4 4 {4 }
Partition I is finer; Partition II is coarser.

Partition I is a refinement of Parition II .
Partition II is a coarsening of Partition I
Neither III nor IV are allowed in the Alpha/Omega game.
Exercise: Say why.
Summary
Information Sets
better information
The formal definition of better information is a finer
information partition.
Not all information partitions are refinements or coarsenings
of each other.
Consider partitions II and IV . II separates nodes into 3
information sets, IV into 2 information sets. IV is not a

coarsening of II , however, and one cannot say for sure that a
player with partition IV has worse information than a player
with II .
Summary
Information Sets
Summary
advantages of ignorance
Information quality is defined independently of the utility to
the player: it is possible for a players information to improve

and for his equilibrium payoff to fall as a result. (Players may
rationally prefer to have worse information!)
Coarse information can have several advantages:
a) It may permit a player to engage in trade because other players
do not fear his superior information.
b) It may give a player a stronger strategic position because he
usually has a strong position and is better off not knowing that
a particular realization of the game is weak.
c) Poor information, like in the real economy, may permit players
to insure one another.
Information Sets
Summary
common knowledge
We have been implicitly assuming that the players know what the
game tree looks like. And we have been assuming that the players
also know that the other players know what the tree looks like.
Common knowledge avoids spelling out the infinite recursion
that this leads to.
Information Sets
Summary
common knowledge
Definition
Information is common knowledge if it is known to all the
players, if each player knows that all the players know it, if each
player knows that all players know that all the players know it, and
so forth ad infinitum.
NB: Because of the recursion, common knowledge is stronger than
mutual knowledge.
Example: We might both know Urdu, but we wouldnt begin speaking to
one another in Urdu unless we knew that we each knew Urdu.
Information Sets
types of information
Information
Category
Meaning
Perfect
Certain
Symmetric
Each information set is a singleton

Nature does not move after any player moves
No player has information different from any other
player when he moves, or at the end nodes
Nature does not move first, or her initial move
is observed by every player
Complete
Summary
Information Sets
Summary
perfect / imperfect information
Definition
If the game is of perfect information, each information set is a
singleton. Otherwise the game is of imperfect information.
In games of perfect information, a player knows exactly where he is in the
game tree. No moves are simultaneous. All players observe Natures
move. Follow the Leader is a game of perfect information.
Information Sets
Summary
certainty / uncertainty
Definition
A game of certaintly has no moves by Nature after any player
moves. Otherwise the game is one of uncertainty
Moves of Nature in a game may or may not be revealed to players
immediately. A game of certainty can be a game of perfect information if
there are no simultaneous moves.
Information Sets
Summary
symmetric / asymmetric information

Definition
In a game of symmetric information, a players information set
at
a) any node where he chooses an action, or
b) an end node
contains at least the same elements as the information sets of
every other player. Otherwise the game is one of asymmetric
information.
Asymmetric games are kinds of imperfect information games, where some
player has useful private information: i.e., an information partition that
is different and not worse than another players. Symmetric information
can have moves by nature or simultaneous moves, so long as no player
has an information advantage.
Information Sets
Summary
incomplete information
Definition
In an incomplete information game, Nature moves first and is
unobserved by at least one of the players. Otherwise the game is
one of complete information.
A game with incomplete information also has imperfect information,
because some players information set includes more than one node.Two
kinds of games have complete but imperfect information: games with
simultaneous moves and games where Nature makes a move late in the
game which is not immediately revealed to all players. Many games of
incomplete information are asymmetric games. A symmetric incomplete
game: Nature assigns Students different abilities unknown to Dean. As
time passes, the abilities become common knowledge.
Information Sets
elements of a game
Rules of a Game
Descriptions
players
strategies
actions
equilibria
payoffs
outcome
information
Types
(non)cooperative
games
strategic and
extensive form
information:
perfect
certain
symmetric
complete
Summary

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Game Theory Lecture Notes Long v1

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The Nash Equilibrium

Strategic and Extensive Form

Introduction to Game Theory

Center for Artificial Intelligence Research

The Nash Equilibrium

Strategic and Extensive Form

The Nash Equilibrium

Strategic and Extensive Form

The Nash Equilibrium

Strategic and Extensive Form

limited applicability thus far

Very few games have a dominant-strategy equilibrium.

The Nash Equilibrium

Strategic and Extensive Form

boxed pigs game

A button push costs a pig 2 units

The Nash Equilibrium

Strategic and Extensive Form

boxed pigs game

The Nash Equilibrium

Strategic and Extensive Form

boxed pigs game

The Nash Equilibrium

Strategic and Extensive Form

The Nash Equilibrium

Strategic and Extensive Form

The Nash Equilibrium

Strategic and Extensive Form

The Nash Equilibrium

Strategic and Extensive Form

The Nash Equilibrium

Strategic and Extensive Form

b) A strategy profile strategy profile s is a strong Nash

The Nash Equilibrium

Strategic and Extensive Form

Test for Nash equilibrium

(Wait, Press) is also unique.

The Nash Equilibrium

Strategic and Extensive Form

Test for Nash equilibrium

(Wait, Press) is also unique.

The Nash Equilibrium

Strategic and Extensive Form

Test for Nash equilibrium

(Wait, Press) is also unique.

The Nash Equilibrium

Strategic and Extensive Form

Test for Nash equilibrium

(Wait, Press) is also unique.

The Nash Equilibrium

Strategic and Extensive Form

Test for Nash equilibrium

(Wait, Press) is also unique.

The Nash Equilibrium

Strategic and Extensive Form

Test for Nash equilibrium

(Wait, Press) is also unique.

The Nash Equilibrium

Strategic and Extensive Form

remarks on nash equilibria

The Nash Equilibrium

Strategic and Extensive Form

The Nash Equilibrium

Strategic and Extensive Form