SimultaneousMoveGames Simultaneous Move Games

Decision making without knowledge of the strategy choice of opponents

SimultaneousMoves Simultaneous Moves

Arisewhenplayershavetomaketheirstrategychoices simultaneously,withoutknowingthestrategiesthathavebeen simultaneously without knowing the strategies that have been chosenbytheotherplayer(s).
Studentstudiesforatest;theteacherwritesquestions. Twofirmsindependentlydecidewhetherornottodevelopandmarket f d d l d d h h d l d k anewproduct.

Whilethereisnoinformationaboutwhatotherplayerswill actuallychoose,weassumethatthestrategicchoicesavailable toeachplayerareknownbyallplayers. Players must think not only about their own best strategic Playersmustthinknotonlyabouttheirownbeststrategic choicebutalsothebeststrategicchoiceoftheotherplayer(s). Wewillconsiderbothdiscreteandcontinuousstrategyspaces.

NormalorStrategicForm g
AsimultaneousmovegameisdepictedinNormalor Strategicformusingagametablethatrelatesthe g g g strategicchoicesoftheplayerstotheirpayoffs. Theconventionisthattherowplayerspayoffislisted firstandthecolumnplayerspayoffislistedsecond. fi t d th l l ff i li t d d
ColumnPlayer Row R Player StrategyR1 StrategyR2 StrategyC1 S C1 a,b e, f StrategyC2 S C2 c,d g,h

Forexample,ifRowplayerchoosesR2andColumn playerchoosesC1,theRowplayerspayoffiseandthe Columnplayerspayoffisf.

SpecialZeroSumForm p
Forzero(orconstantsumgames),knowing thepayoffssumtozero(orsomeother the payoffs sum to zero (or some other constant)allowsustowriteasimultaneous g py movegameinnormalformmoresimply:
Warden Prisoner Pi ClimbWall Cli b W ll DigTunnel GuardWall 1 1 1 InspectCells 1 1

Payoffs are shown only for the Prisoner; the PayoffsareshownonlyforthePrisoner;the Wardenspayoffsarethenegativeofthe prisoner spayoff prisoners payoff

TheRoleofBeliefs
Whenplayersmovesimultaneously,whatdoesitmean tosaythatinequilibriumstrategiesareamutualbest response? ?
Youcannot seewhat the otherisdoing and condition your behaviorontheirmove.

Insimultaneousmovegames,rationalplayersconsider allofthestrategiestheiropponentsmay takeandthey ( j p ) formbeliefs(subjectiveprobabilities)aboutthe likelihoodofeachstrategytheiropponent(s)could take. After forming these beliefs rational players maximize Afterformingthesebeliefs,rationalplayersmaximize theirexpectedpayoffbychoosingthestrategythatisa bestresponsetotheirbeliefsabouttheplayoftheir opponent(s).Thesameistrueoftheopponent(s). opponent(s) The same is true of the opponent(s)

CoordinationGameExample Coordination Game Example

Howwouldyouplaythisgame? y p y g

ExampleoftheRoleofBeliefs p
Considerthepurecoordinationgame.
Column Player Row Player X Y X 0,0 1, 1 Y 1,1 0,0

Suppose Row player assigns probability p> 5 to column SupposeRowplayerassignsprobabilityp>.5tocolumn playerplayingY.ThenRowsbestresponsetothisbelief istoplayX:
RowsexpectedpayofffromplayingXis0(1p)+1(p)=p,while RowsexpectedpayofffromplayingYis1(1p)+0(p)=1p.Since weassumedp>.5,theexpectedpayofftoRowfromplayingX,p, isgreaterthantheexpectedpayofftoY,1p. h h ff

HowMightSuchBeliefsbeFormed? g
Playerssubjectivebeliefsabouttheplayofan opponentinasimultaneousmovegamemaybe opponent in a simultaneous move game may be formedinoneofseveralways:
Introspection:givenmyknowledgeoftheopponents payoffswhatwouldIdoifIweretheotherplayer? payoffs what would I do if I were the other player? History (repeatedgamesonly):whatstrategyhasthesame opponentplayedinthepast. Imitation/learning from others: what strategies have Imitation/learningfromothers:whatstrategieshave players(otherthanmycurrentopponent)choseninthis typeofstrategicsetting? Preplay communication Preplaycommunication. Othertypeofsignaling.

Wefocusfornowonthefirst,introspectivemethod.

Purevs.MixedStrategies g
Aplayerpursuesapurestrategyifshealways choosesthesamestrategicactionoutofallthe chooses the same strategic action out of all the strategicactionchoicesavailabletoherinevery round.
e.g.Alwaysrefusetocleantheapartmentyoushare Al f t l th t t h withyourroommate.

Aplayerpursuesamixedstrategyifshe p y p gy randomizesinsomemanneramongthestrategic actionchoicesavailabletoherineveryround. e g Sometimes pitch a curveball sometimes a e.g.Sometimespitchacurveball,sometimesa slider(mixitup,keepthemguessing).

We focus for now on pure strategies only. Wefocusfornowonpurestrategiesonly.

Example:BattleoftheNetworks p f
Supposetherearejusttwotelevisionnetworks.Bothare battlingforsharesofviewers(0100%).Highersharesare preferred(=higheradvertisingrevenues). preferred ( higher advertising revenues) Network1hasanadvantageinsitcoms.Ifitrunsasitcom, italwaysgetsahighersharethanifitrunsagameshow. Network2hasanadvantageingameshows.Ifitrunsa gameshowitalwaysgetsahighersharethanifitrunsa sitcom.
Network2 k Sitcom 55%,45% 55% 45% 50%, 50% GameShow 52%,48% 52% 48% 45%,55%

Network1 Network 1

Sitcom GameShow

NashEquilibrium
Wecannotuserollbackinasimultaneousmovegame,so howdowefindasolution? Wedeterminethebestresponseofeachplayertoa particularchoiceofstrategybytheotherplayer. Wedothisforbothplayers.Notethatinthinkingofan opponentsbestresponse,weareusingintrospectionto formbeliefsaboutwhatthe(rational)opponentwilldo. Ifeachplayersstrategychoiceisabestresponsetothe strategychoiceoftheotherplayer,thenwehavefounda solutionorequilibriumtothegame. ThissolutionconceptisknowasaNashequilibrium,after p q JohnNashwhofirstproposedit. Agamemayhave0,1ormoreNashequilibria.

BestResponseAnalysis
Bestresponseanalysis(a.k.a.cellbycellinspection)is themostreliablemethodforfinding Nashequilibria. First find Network 1's best response to Network 2's possible strategies:
IfNetwork2runsasitcom,Network1sbestresponseisto p runasitcom.CircleNetwork1spayoffinthiscase,55% IfNetwork2runsagameshow,Network1sbestresponseis torunasitcom.CircleNetwork1 spayoffinthiscase,52% to run a sitcom Circle Network 1s payoff in this case 52%
Network2 Sitcom 55%,45% 50%, 50% GameShow 52%,48% 45%,55%

Network1

Sitcom GameShow

BestResponseAnalysis,Continued
Next,wefindNetwork2sbestresponse. IfNetwork1runsasitcom,Network2sbestresponseistorunagame show.CircleNetwork2spayoffinthiscase,48% p y , IfNetwork1runsagameshow,Network2sbestresponseistoruna gameshow.CircleNetwork2spayoffinthiscase,55% TheuniqueNashequilibriumisforNetwork1torunasitcomandNetwork2 The unique Nash equilibrium is for Network 1 to run a sitcom and Network 2 torunagameshow. Thisisfoundbythecellwiththetwocircledpayoffs.Thisisthemethodof bestresponseanalysisforlocatingNashequilibria. best response analysis for locating Nash equilibria
Network2 Sitcom 55%,45% 50%, 50% GameShow 52%,48% 45%,55%

Network1

Sitcom GameShow

DominantStrategies
Aplayerhasadominantstrategyifitoutperforms ( (hashigherpayoffthan)allotherstrategiesregardless g p y ) g g ofthestrategieschosenbytheopposingplayer(s). Forexample,inthebattleofthenetworksgame, p , g , Network1hasadominantstrategyofalways choosingtorunasitcom.Network2hasadominant strategyofalwayschoosingtorunagameshow. strategy of always choosing to run a game show Why? Successiveeliminationofnondominant or Successive elimination of dominatedstrategiescanhelpustofindaN.E. equum.

SuccessiveEliminationofDominated Strategies
AnotherwaytofindNashequilibria Drawlinesthrough(successivelyeliminate)eachplayersdominated strategy(s). Ifsuccessiveeliminationofdominatedstrategiesresultsinaunique outcome,thatoutcomeistheNashequilibriumofthegame. We call such games dominance solvable Wecallsuchgamesdominancesolvable. But,notallgameshaveuniqueequilibria/aredominancesolvable,sothis methodwillnotworkasgenerallyasbestresponseanalysis.
Network2 k Sitcom 55%,45% 55% 45% 50%, 50% GameShow 52%,48% 52% 48% 45%,55%

Network1 Network 1

Sitcom GameShow

MinimaxMethod
Forzero,orconstantsumgamesonly,sonotsogeneral Eachplayerreasonsthatwhatsgoodformeisbadformyopponent. Supposepayoffsarewrittenforrowonly(Networkgameisconstantsum). Rowlooksonlyatthelowestpayoffineachrowandchoosestherowwith thehighestoftheselowestpayoffs(maximizestheminimum) g p y ( )
Network1choosessitcombecause52%>48%.

Columnlooksonlyatthehighestpayoffsineachcolumnandchoosesthe rowwiththelowestofthesehighestpayoffs(minimizesthemaximum). g p y ( )
Network2choosesgameshowbecause52%<55%. Network2 Sitcom 55% 50% 55% GameShow 52% 45% 52% RowMin 52% 45%

Network1

Sitcom GameShow Game Show ColumnMax

AddingMoreStrategies g g
SupposeweaddathirdchoiceofatalentshowtoBattleof theNetworks.
Network2 Sitcom 55%,45% 50%, 50% 50% 52%,48% GameShow 52%,48% 45%,55% 45% 55% 49%,51% TalentShow 51%,49% 46%,54% 46% 54% 48%,52%

Sitcom Network1 Network 1 GameShow Game Show TalentShow

WhatistheNashequilibriuminthiscase?Firstask:arethereany dominatedstrategies?Ifso,eliminatethemfromconsideration.

EliminatingtheDominatedStrategiesReducesthe SetofStrategiesthatMayCompriseNashEquilibria. S t f St t i th t M C i N h E ilib i

Network2 Sitcom 55%,45% 50%, 50% 50% 52%,48% GameShow 52%,48% 45%,55% 45% 55% 49%,51% TalentShow 51%,49% 46%,54% 46% 54% 48%,52%

Sitcom Network1 Network 1 GameShow Game Show TalentShow

AgameshowisadominatedstrategyforNetwork1. Atalentshow is adominatedstrategyforNetwork1. AsitcomisadominatedstrategyforNetwork2. A sitcom is a dominated strategy for Network 2

Continuingthesearchfordominatedstrategies amongtheremainingchoices th i i h i

Network2 Sitcom 55%,45% 50%, 50% 50% 52%,48% GameShow 52%,48% 45%,55% 45% 55% 49%,51%

NashEquilibrium TalentShow 51%,49% 46%,54% 46% 54% 48%,52%

Sitcom Network1 Network 1 GameShow Game Show TalentShow

GameshowisnowadominatedstrategyforNetwork2

BestResponseAnalysisAlsoWorks Best Response Analysis Also Works

Network2 Sitcom 55%,45% 50%, 50% 50% 52%,48% GameShow 52%,48% 45%,55% 45% 55% 49%,51% NashEquilibrium TalentShow 51%,49% 46%,54% 46% 54% 48%,52%

Sitcom Network1 Network 1 GameShow Game Show TalentShow

AddingaThirdPlayer g y
Consideragainthecaseoftwostrategies,sitcomandgame showandsupposethereisathirdplayer,Network3. show and suppose there is a third player Network 3 Thenormalformrepresentationofthisthreeplayergameis:
Network3 k
Sitcom GameShow

Network2
Sitcom Sitcom
34%,25%,41%

Network2
GameShow
32%,32%,36%

Sitcom Sitcom
34%,29%,37%

GameShow
38%,32%,30%

Network 1
GameShow Game Show
32%,30%,38% 32% 30% 38% 33%,31%,36% 33% 31% 36%

Network 1
GameShow Game Show
35%,38%,27% 35% 38% 27% 36%,39%,25% 36% 39% 25%

Network3spayoffisnowthethirdpercentagegiven. Wh t i th N h What istheNashequilibriumofthisgame? ilib i f thi ?

UseBestResponseAnalysis Use Best Response Analysis

Network3 k
Sitcom GameShow

Network2
Sitcom Sitcom
34%,25%,41%

Network2
GameShow
32%,32%,36%

Sitcom Sitcom
34%,29%,37%

GameShow
38%,32%,30%

Network 1
GameShow Game Show
32%,30%,38% 32% 30% 38% 33%,31%,36% 33% 31% 36%

Network 1
GameShow Game Show
35%,38%,27% 35% 38% 27% 36%,39%,25% 36% 39% 25%

Pure strategyNashequilibriumtothisgame isforNetwork1 torunagameshow,Network2torunagameshowand to run a game show Network 2 to run a game show and Network3torunasitcom.

NonConstantSumGames
TheNetworkGameisanexampleofaconstantsumgame. Thepayoffstobothplayersalwaysadduptotheconstantsumof100%. The payoffs to both players always add up to the constant sum of 100% Wecouldmakethatgamezerosumbyredefiningpayoffsrelativetoa 50%50%shareforeachnetwork. Nash eq ilibria also e ist in non constant s m or variable sum games Nashequilibriaalsoexistinnonconstantsumorvariablesumgames, whereplayersmayhavesomecommoninterest. Forexample,prisonersdilemmatypegames.Payoffsareprofits,so moreisbetter: more is better
BurgerKing ValueMeals Value Meals 2,2 1,4 NoValueMeals No Value Meals 4,1 3,3

McDonalds

ValueMeals NoValueMeals

AsymmetryInPayoffs Asymmetry In Payoffs

Payoffsneednotbesymmetricinequilibrium. Consider this version of Prisoners Dilemma: ConsiderthisversionofPrisoner sDilemma:
BurgerKing ValueMeals 3,1 1,6 16 NoValueMeals 5,0 4,5 4 5

McDonalds

ValueMeals NoValueMeals N V l M l

Bothplayersstillhaveadominantstrategyof ValueMeals:GameisStillaPD,asthemutually efficient(mostjointlyprofitable)outcomeisnota Nashequilibrium Nash equilibrium

NoEquilibriuminPureStrategies No Equilibrium in Pure Strategies

Noteverysimultaneousmovegamehasan y g equilibriuminpurestrategies. ConsideragainthePrisonerWardengame.
Warden Guard Wall Prisoner Climb Wall DigTunnel 1,1 1 1 1,1 InspectCells 1,1 1 1 1,1

Cell by cell inspection yields NO pure strategy NE CellbycellinspectionyieldsNOpurestrategyNE. Thereis,however,anequilibriuminmixed g strategies.

Rationalizability
Analternativesolutionconceptthatisageneralizationof Nashequilibrium. Identifystrategiesthatareneverabestresponse foraplayer givenanybeliefsabouttheplayofhisopponent.Strictly dominatedstrategiesareneverabestresponse,butthere canbestrategiesthatarenotstrictlydominatedbutwhich b t t i th t t t i tl d i t d b t hi h areneverabestresponse. Thesetofstrategiesthatsurviveeliminationonthegrounds ofneverbeingabestresponsearethesetofrationalizable f b i b t th t f ti li bl equilibriatheycanberationalizedviacertainbeliefs. EveryNashequilibriumisarationalizable equilibriuim,but noteveryrationalizable equilibriumisaNashequilibrium. t ti li bl ilib i i N h ilib i Inthissense,rationalizability isamoregeneralsolution concept.

Rationalizability Example
Column X Row A B C 3,2 1,3 13 2,1 Y 0,3 2,0 20 4,3 Z 2,0 1,2 12 0,2

Notethatneitherplayerhasanydominatedstrategies. h h l h d d Nashequilibriumis:CY ForRow,StrategyBisneverabestresponse. ForColumn,StrategyZisneverabestresponse. , gy p Eliminatingthese,weseethatXisneverabestresponseforColumn. ItfurtherfollowsthatAisnotabestresponseforRow,leavingonlyCY. Moregenerally,sequentialeliminationofneverbestresponsesneednotlead toNashequilibrium t N h ilib i

EliminationofNeverBestResponses NeedNotSelectaSolution d l l
Considerthisexample:
Column X Row A B C 1,5 15 4,2 5,1 Y 2,4 24 3,3 2,4 Z 5,1 51 4,2 1,5

ForRow,Aisrationalizable ifRowthinksColumnwillplayZ;Bis rationalizable ifRowthinksColumnwillplayY;Cisrationalizable if RowthinksColumnwillplayX. F C l ForColumn,Xisrationalizable if C l Xi i li bl ifColumnthinksRowwillplayA;Yis hi k R ill l A Y i rationalizable ifColumnthinksRowwillplayB,Zisrationalizable if ColumnthinksRowwillplayC. Thus all strategies are rationalizable in this example Thus,allstrategiesarerationalizable inthisexample. However,theNashequilibrium,usingbestresponseanalysisisBY

How to Negotiate a Pay Raise with Game Theory

anuzis

http://www.youtube.com/watch?v=ikE1pn034WA

http://www.youtube.com/watch?v=rExm2FbY-BE

Can you solve this three player game?