Two-Person Non-Zero-Sum Game

Instructor: Kyle Lin

Naval Postgraduate School
Operations Research Department
Monterey, California

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Game 11.1: one pure strategy equilibrium

Colin
A
Rose
B

A
(2,3)

(1,0)

B
(3,2)

(0,1)

Rose A dominates Rose B.

(Rose A, Colin A) is the only pure-strategy equilibrium
(analogous to saddle point in zero-sum game).
An equilibrium is a pair of strategies where each players
strategy is the best response against the others strategy. In
other words, no player can gain by switching to some other
strategy.

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Game 11.2: no pure strategy equilibrium

Colin
A
Rose
B

A
(2,4)

(3,1)

B
(1,0)

(0,4)

No domination between strategies.

No pure-strategy equilibrium.
Is there a mixed-strategy equilibrium?

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Let Rose play Colins game

Colin
x

Rose
A

1x

A
(2, 4)

(3, 1)

B
(1, 0)

(0, 4)

Rose chooses x to equalize Colins payoff between A and B:

4(x) + 1(1 x) = 0(x) + 4(1 x) x =

3
7

With mixed strategy ( 37 A, 74 B), Rose gives Colin an expected

payoff 16
7 2.29 regardless what Colin does.
We call it Roses equalizing strategy.

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Let Colin play Roses game

Colin
Rose
A
B

y
A
(2, 4)

(3, 1)

1y
B
(1, 0)

(0, 4)

Colin chooses y to equalize Roses payoff between A and B:

2(y) + 1(1 y ) = 3(y ) + 0(1 y) y =

1
2

With mixed strategy ( 12 A, 21 B), Colin gives Rose an expected

payoff 32 = 1.5 regardless what Rose does.
We call it Colins equalizing strategy.
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Nash equilibrium

If both players adopt the equalizing strategies, no player can

gain by switching to some other strategyan equilibrium.
John Nash proved that every two-person game has at least
one equilibrium (there could be more than one).
We call equilibria in non-zero-sum game Nash equilibria in
his honor.

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Nash equilibrium may have undesirable properties

However, the equilibrium solution results in payoff (1.50, 2.29).

They could both do better by playing (Rose A, Colin A).
Colin
A
Rose
B

A
(2, 4)

(3, 1)

B
(1, 0)

(0, 4)

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Game 11.3: Multiple pure-strategy equilibria

Colin
A
Rose
B

A
(1, 1)

(5, 2)

B
(2, 5)

(1, 1)

Two pure-strategy equilibria (saddle points).

They have different values.
In zero-sum games, saddle points are equivalent and
interchangeable:
All saddle points have the same value.
If both players play a saddle point strategy, the outcome is a
saddle point.

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Game 11.4: Only one pure-strategy equilibrium, but

undesirable outcome

Colin
A
Rose
B

A
(3, 3)

(5, 1)

B
(1, 5)

(0, 0)

Only one pure-strategy equilibrium.

Pareto: We should not accept an economic system if there is
another available system that would make everyone better off.

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Pareto optimal
Pareto optimal does not mean best, just not obviously inferior

An outcome of a game is non-Pareto-optimal if there is

another outcome which would give both players higher
payoffs, or would give one player the same payoff but the
other player a higher payoff.
An outcome is Pareto optimal if no player can improve
without hurting the other.
Pareto principle: To be acceptable as a solution to a game,
an outcome should be Pareto optimal.
In zero-sum games, every outcome is Pareto optimal.

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Conflict between dominance principle and Pareto

principle

Colin
A
Rose
B

A
(3, 3)

(5, 1)

B
(1, 5)

(0, 0)

Dominance principle (individual rationality):

BB is the only equilibrium
Pareto principle (group rationality):
BB is not Pareto optimal

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Payoff polygon helps identify Pareto optimal solutions

Plot points to represent pure-strategy outcomes.

Mixed-strategy outcomes are represented by points in the
convex polygon enclosing the pure-strategy points.

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Game 11.1

Colin
A
Rose
B

A
(2, 3)

(1, 0)

B
(3, 2)

(0, 1)

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Game 11.2

Colin
A
Rose
B

A
(2, 4)

(3, 1)

B
(1, 0)

(0, 4)

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Game 11.3

Colin
A
Rose
B

A
(1, 1)

(5, 2)

B
(2, 5)

(1, 1)

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Game 11.4

Colin
A
Rose
B

A
(3, 3)

(5, 1)

B
(1, 5)

(0, 0)

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Quick summary

An equilibrium outcome is stable: no one has incentive to

deviate.
Nash proved an equilibrium always exists.
There can be two or more equilibria.
Equilibria can be different.
Even if there is only one equilibrium, it may not be Pareto
optimal.

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Prudential strategy and security level

In a non-zero-sum game, Roses optimal strategy in Roses

game is called Roses prudential strategy.
The value of Roses game is called Roses security level.

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Game 11.2: Roses prudential strategy

Solve Roses game as if it were zero-sum:

Colin
Rose
A
B

A
(2,4)

(3,1)

B
(1,0)

(0,4)

Rose
A
B

Colin
A B
2 1
3 0

Roses prudential strategy is (1A, 0B), and security level is 1.

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Game 11.2: Colins prudential strategy

Solve Colins game as if it were zero-sum (payoff goes to Colin):

Colin
Rose
A
B

A
(2,4)

(3,1)

B
(1,0)

(0,4)

Rose
A
B

Colin
A B
4 0
1 4

Colins prudential strategy is ( 47 A, 73 B), and security level is

16
7 .

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Game 11.2: Prudential strategy need not be an

equilibrium
If both players play their prudential strategies, the outcome will be
4
3
11 16
AA + AB = ( , )
7
7
7 7

Not an equilibrium ( 32 , 16
7 )
Not Pareto optimal (AA-BA)

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Prudential strategies do not offer a good solution

concept

Colin plays his prudential strategy.

Rose plays her counter-prudential strategy to maximize her
expected payoff.
Colin switches to his counter-counter-prudential strategy to
maximize his expected payoff.
Rose switches to her counter-counter-counter-prudential . . . .
...

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Solvable in the strict sense

A two-person game is solvable in the strict sense if

there is at least one equilibrium outcome that is Pareto
optimal, and
if there is more than one Pareto optimal equilibrium, all of
them are equivalent and interchangeable.
If so, the solution is
the unique Pareto optimal equilibrium, or
the set of all equivalent and interchangeable Pareto optimal
equilibria.

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Only Game 11.1 is solvable in the strict sense

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The prisoners dilemma (Chapter 12)

Rose
A
B

Colin
A
B
(0, 0)
(2, 1)
(1, 2) (1, 1)

Rose and Colin are suspects for a joint crime, interrogated

separately.
Strategy A is to remain silent.
Strategy B is to confess.

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The general form of prisoners dilemma

Rose
Cooperate
Defect

Colin
Cooperate Defect
(R, R)
(S, T )
(T , S)
(U, U)

R: reward for cooperation

S: sucker payoff
T : temptation payoff
U: uncooperative payoff

T > R > U > S Defect dominates Cooperate

R>

S+T
(C,C) is the only Pareto optimal solution
2

Other examples: Arm race, price competition.

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Repeated play

Playing only once, no reason to cooperate.

Playing 10 times, perhaps cooperating will lead to (C,C) in the
long run, but
In the 10th round, one should defect.
In the 9th round, one should defect.

Domino effect.

Playing another round with probability p.

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Repeated play: Play another round with probability p

The strategy GRIM: Start with C, and switch to D forever as soon

as the opponent chooses D. To play against GRIM, choose
between
Cooperate:
Defect:

R
1p
pU
T + pU + p2 U + = T +
1p
R + pR + p2 R + =

It is optimal to cooperate if
R
pU
>T +
1p
1p

or

p>

T R
T U

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Repeated play in practice

The strategy TIT FOR TAT:

1

Start by choosing C.

Thereafter, in each round choose whatever your opponent

chose in the previous round.

Four properties:
1

Nice.

Retaliatory.

Forgiving.

Clear.

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Strategic moves (Chapter 14)

Simultaneous moves versus sequential moves

Do you want to move first or second?

Commitment, threat, and promise

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Game 14.1: Strategic moves in a zero-sum game

Colin
Rose
A
B

A
(3, 3)
(1, 1)

B
(0, 0)
(4, 4)

With simultaneous moves, the value of the game is 1.5 to

Rose.
If you must move first, does it help you or hurt you?

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Game 14.2: Chicken

Two cars racing into each other, in the last minute, you choose
between
A. swerve
B. go straight

Rose
A
B

Colin
A
B
(3, 3) (2, 4)
(4, 2) (1, 1)

Both players like to move first.

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Game 14.3: Commitment

Colin
Rose
A
B

A
(2, 3)
(1, 2)

B
(4, 1)
(3, 4)

With simultaneous moves, AA is the only equilibrium (not

Pareto optimal).
If Rose moves first, she has reason to choose B, because the
best response for Colin is to choose B as well.
Both players like Rose to move first.

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Game 14.4: Can commitment make a difference?

Rose
A
B

Colin
A
B
(4, 3) (3, 4)
(2, 1) (1, 2)

With simultaneous moves, AB is the only equilibrium (solvable

in the strict sense).
Does commitment change the result of this game?
If Rose moves first, what would be the outcome?
If Colin moves first, what would be the outcome?

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Game 14.4: Threat

Colin
Rose
A
B

A
(4, 3)
(2, 1)

B
(3, 4)
(1, 2)

If Colin moves first, Rose can make a threat:

If you choose B, then I will choose B.
A threat has the following properties:
1

Rose says that her action is contingent on a previous action

by Colin.

Roses action will hurt Colin.

Roses action will also hurt Rose.

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How to make a threat credible?

Rose
A
B

Colin
A
B
(4, 3) (3, 4)
(2, 1) (1, 2)

A threat is difficult to carry out:

Roses action will also hurt Rose.
If Colin is not deterred, then Rose has no incentive to carry
out that threat.
How to make a threat credible?
Repeated play.
Lower Roses payoff at AB from 3 to 0.

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Ultimatum

Colin proposes how to divide $100.

If Rose accepts, they split the money; otherwise both players

get $0.

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Ultimatum in matrix form

Colin moves first

Rose
Accept
Reject

(100, 0)
(100, 0)
(0, 0)

(99, 1)
(99, 1)
(0, 0)

Colin
(2, 98)
(2, 98)
(0, 0)

(1, 99)
(1, 99)
(0, 0)

(0, 100)
(0, 100)
(0, 0)

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Game 14.5: Prisoners dilemma

Colin
Rose
A
B

A
(3, 3)
(5, 1)

B
(1, 5)
(0, 0)

With simultaneous moves, BB is the only equilibrium.

Does commitment change the result of this game?
If Roses moves first, what would be the outcome?
If Colin moves first, what would be the outcome?

Does threat change the result of this game?

If Roses moves first, what would be the outcome?
If Colin moves first, what would be the outcome?

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Game 14.5: Promise

Colin
Rose
A
B

A
(3, 3)
(5, 1)

B
(1, 5)
(0, 0)

Rose can make a promise:

If you choose A, then I will choose A.
A promise has the following properties:
1

Rose says that her action is contingent on a previous action

by Colin.

Roses action will benefit Colin.

Roses action will hurt Rose.

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Game 14.6: Combination of threat and promise

Rose
A
B

Colin
A
B
(3, 3) (1, 5)
(4, 0) (0, 2)

With simultaneous moves, AB is the only equilibrium.

Can Rose make a commitment to change the result?
Can Rose make a threat to change the result?
Can Rose make a promise to change the result?
Rose says: If you choose B, then I will choose B; if you choose A,
then I will choose A (both threat and promise).

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Draft: All teams draft sincerely

1st round
2nd round

Team 1
A
B
C
D
E
F

Team 2
E
F
B
A
D
C

Team 3
C
F
E
D
A
B

Team 3 wonders if he can improve.

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Team 3 can improve by taking F in the 1st round

1st round
2nd round

Team 1
A
B
C
D
E
F

Team 2
E
F
B
A
D
C

Team 3
C
F
E
D
A
B

Team 3 improves, but Team 2 is upset.

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Team 2 cannot improve by taking F in the 1st round

1st round
2nd round

Team 1
A
B
C
D
E
F

Team 2
E
F
B
A
D
C

Team 3
C
F
E
D
A
B

Team 2 ends up worse by taking F in the 1st round.

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But Team 2 can improve by taking B in the 1st round

1st round

2nd round

Team 1
A
B
C
D
E
F

Team 2
E
F
B
A
D
C

Team 3
C
F
E
D
A
B

Team 2 improves, but Team 1 is upset.

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Can Team 1 improve by taking B in the 1st round?

What will happen if Team 2 takes E?

2nd round
1st round

Team 1
A
B
C
D
E
F

Team 2
E
F
B
A
D
C

Team 3
C
F
E
D
A
B

Team 2 ends up with E and D.

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Can Team 1 improve by taking B in the 1st round?

What will happen if Team 2 takes F?

2nd round
1st round

Team 1
A
B
C
D
E
F

Team 2
E
F
B
A
D
C

Team 3
C
F
E
D
A
B

Team 2 ends up with F and D.

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Can Team 1 improve by taking B in the 1st round?

What will happen if Team 2 takes A?

1st round
2nd round

Team 1
A
B
C
D
E
F

Team 2
E
F
B
A
D
C

Team 3
C
F
E
D
A
B

Team 2 ends up with E and Abest Team 2 can do.

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Team 1 can improve by taking C in the 1st round

2nd round
1st round

Team 1
A
B
C
D
E
F

Team 2
E
F
B
A
D
C

Team 3
C
F
E
D
A
B

Team 1 improves, but sincere draft was better for all.

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