Game Theory: Strategic games and equilibria concepts

TAAC Oct-2010
Summary
2 General setting
2 Strategic Games and strategies
2 Best response
2 Pure Nash Equilibria
2 Mixed Nash Equilibria
Basic Reference
2 Osborne. An Introduction to Game Theory, Oxford University Press, 2004
2 Ad-hoc references.
2 Nisan, Roughgarden, Tardos, Vazirani, Eds. Algorithmic game theory,
Cambridge Univ. Press, 2007
What is Game Theory?
Game theory is often described as a branch of applied mathematics and
economics that studies situations where players choose different actions in
an attempt to maximize their returns.
The essential feature, however, is that it provides a formal modelling
approach to social situations in which decision makers interact with other
minds.
Game theory extends the simpler optimization approach developed in
neoclassical economics.
Where to use game theory?
Game theory studies decisions made in an environment in which players interact.
In other words, game theory studies choice of optimal behavior when costs and
benefits of each option depend upon the choices of other individuals.

What for?
Game theory looks for states of equilibrium sometimes called solutions
History
The field of game theory came into being with the 1944 classic Theory of Games
and Economic Behavior by John von Neumann and Oskar Morgenstern.
1713 The first known discussion of game theory occurred in a letter written by
James Waldegrave.
Provides a minimax mixed strategy solution to a two-person version of the
card game.
1838 Antoine Augustin Cournots Researches into the Mathematical Principles of
the Theory of Wealth.
Considers a duopoly and presents a solution that is a restricted version of the
Nash equilibrium.
1928 John von Neumann published a series of papers.
1944 The field of game theory came into being with the classic Theory of Games
and Economic Behavior by John von Neumann and Oskar Morgenstern.
During this initial time period, work focus on cooperative game theory.
Which analyzes optimal strategies for groups of individuals.
1950s the first discussion of the prisoners dilemma appeared, and an experiment
was undertaken on this game at the RAND corporation.
John Nash developed a definition of an optimum strategy for multiplayer
games where no such optimum was previously defined, known as Nash
equilibrium.
Analysis of non-cooperative games in addition to cooperative ones.
Concepts: the extensive form game, fictitious play, repeated games, and the
Shapley value were developed.
Applications of Game theory to philosophy and political science.
1960s and 1970s Development of new concepts:
Subgame perfect equilibria. Complete information and Bayesian games.
Correlated equilibria, trembling hand perfection, common knowledge.
Evolutionary game theory.
Applications of Game theory to biology an many other fields.
90s 00s Popular acknowledgement.
John Nash and Reinhard Selten, won the Nobel Prize in 1994.
Thomas Schelling and Robert Aumann, won the Nobel Prize in 2005
In addition to its academic interest, game theory receives attention in popular
culture.
John Nash, was the subject of the 1998 biography by Sylvia Nasar and the
2001 film A Beautiful Mind.
Game theory was also a theme in the 1983 film WarGames.
Several game shows have adopted game theoretic situations, at the end of the
course you might recognize them!
What about Internet?
Christos Papadimitriou (STOC 2001)

The internet is unique among all the computer systems in that it is build,
operated and used by multitude of diverse economic interests, in varing
relationships of collaboration and competition with each other. This suggest that
the mathematical tools and insights most appropriate for understanding the
Internet may come from the fusion of algorithmic ideas with concepts and
techniques from Mathematical Economics and Game Theory.

http://www.cs.berkeley.edu/christos/games/cs294.html
Game Theory for CS?
2 Framework to analyze equilibrium states of protocols used by rational agents.
Price of anarchy/stability.
2 Tool to design protocols for internet with guarantees.
Mechanism design.
2 New concepts to analyze/justify behavior of on-line algorithms
Give guarantees of stability to dynamic network algorithms.
2 Source of new computational problems to study.
Algorithmic game theory
Non-cooperative games
2 Strategic games
2 Extensive games
2 Repeated games
2 Bayesian games

Complete information versus partial information

One shot?
Strategic game
A strategic game (with ordinal preferences) consists of:
2 A finite set N = {1, . . . , n} of players.
2 For each player i N , a nonempty set of actions Ai .
2 Each player chooses his action once. Players choose actions simultaneously.
No player is informed, when he chooses his action, of the actions chosen by
others.
2 For each player i N , a preference relation (a complete, transitive, reflexive
binary relation) i over the set A = A1 An .

It is frequent to specify the players preferences by giving utility functions

ui (a1 , . . . an ). Also called pay-off functions.
Example: Prisoners Dilemma

The story
2 Two suspects in a major crime are held in separate cells.
2 Evidence to convict each of them of a minor crime.
2 No evidence to convict either of them of a major crime unless one of them
finks.
The penalties
2 If both stay quiet, be convicted for a minor offense (one year prison).
2 If only one finks, he will be will be freed (and used as a witness) and the other
will be convicted for a major offense (four years in prison).
2 If both fink, each one will be convicted for a major offense with a reward for
coperation (three years each).
The Prisoners Dilemma models a situation in which
2 there is a gain from cooperation,
2 but each player has an incentive to free ride.
Game representation
2 Players N = {Suspect 1, Suspect 2} = {1, 2}.
2 Actions A1 = A2 = {Quiet, Fink}.
2 Action profiles
A = A1 A2 = {(Quiet, Quiet), (Quiet, Fink), (Fink, Quiet), (Fink, Fink)}
2 Preferences
Player 1

(Fink, Quiet) 1 (Quiet, Quiet) 1 (Fink, Fink) 1 (Quiet, Fink)

Player 2

(Quiet, Fink), 2 (Quiet, Quiet) 2 (Fink, Fink) 2 (Fink, Quiet)

2 Utilities
u1 (Fink, Quiet) = 3, u1 (Quiet, Quiet) = 2, u1 (Fink, Fink) = 1, u1 (Quiet, Fink) = 0
u2 (Quiet, Fink) = 3, u2 (Quiet, Quiet) = 2, u2 (Fink, Fink) = 1, u2 (Fink, Quiet) = 0
We can represent pay-offs in a compact way on a bi-matrix.
Suspect 2
Quiet Fink
Quiet 2,2 0,3
Suspect 1
Fink 3,0 1,1
Example: Matching Pennies

2 Two people choose, simultaneously, whether to show the head or tail of a coin.
2 If they both show the same side, person 2 pays 1 euro to person 1, otherwise
person 1 pays 1 euro to person 2.
2 Payoffs are equal to the amounts of money involved.

Person 2
Head Tail
Head 1,-1 -1,1
Person 1
Tail -1,1 1,-1

This is an example of a zero-sum game that form part of a more general class of
constant-sum games.
Example: Stag Hunt

Jean-Jacques Rousseau. Discourse on the origin and foundations of inequality

among men.
2 A goup of hunters who wish to catch a stag.
2 They will succed if they all remain attentive, but each is tempted to desert his
post and catch a hare.
Example: Stag Hunt

Jean-Jacques Rousseau. Discourse on the origin and foundations of inequality

among men.
2 A goup of hunters who wish to catch a stag.
2 They will succed if they all remain attentive, but each is tempted to desert his
post and catch a hare.

Stag Hare
Stag 2,2 0,1
Hare 1,0 1,1
Example: BoS, Bach or Stravinky

2 Two persons want to go out together.

2 Two concerts are available, Bach or Stravinsky.
2 One person prefers Bach, the other Stravinsky.
2 They agree that cooperation is better but disagree about the best outcome.
Example: BoS, Bach or Stravinky

2 Two persons want to go out together.

2 Two concerts are available, Bach or Stravinsky.
2 One person prefers Bach, the other Stravinsky.
2 They agree that cooperation is better but disagree about the best outcome.

Bach Stravinsky
Bach 2,1 0,0
Stravinsky 0,0 1,2
Example: BoS, Bach or Stravinky

2 Two persons want to go out together.

2 Two concerts are available, Bach or Stravinsky.
2 One person prefers Bach, the other Stravinsky.
2 They agree that cooperation is better but disagree about the best outcome.
Bach Stravinsky
Bach 2,1 0,0
Stravinsky 0,0 1,2
The game is also referred as a Battle of Sexes:

Wife
Fights Ballet
Fights 2,1 0,0
Husband
Ballet 0,0 1,2
Example: Sending from s to t

2 We have a graph G = (V, E) and two vertices s, t.

2 There is one player for each vertex v V , v 6= t.
2 The set of actions for player u is NG (u).
2 A strategy profile is a set of vertices (v1 , . . . , vn1 ).
2 Pay-offs are defined as follows:
player u gets 1 if the shortest path joining s to t in the digraph induced by
v1 , . . . , vn1 contains (u, vu ), otherwise gets 0.

Players are selfish but the system can get a different reward/cost. For example
the cost of the shortest path.
Sending from s to t: example

s b b b b
t

b
Sending from s to t: strategies

s b b b b
t

b
Sending from s to t: pay-offs

s b b b b
t

Red nodes get pay-off 1, blue nodes get pay-off 0.

Strategies
A strategy of player i N in a strategic game is an action ai Ai .

A strategy profile s = (s1 , . . . , sn ) consists of a strategy for each player.

For each s = (s1 , . . . sn ) we denote by

si = (s1 , . . . , si1 , si+1 , . . . , sn )

(si , si ) = (s1 , . . . , si1 , si , si+1 , . . . , sn )

Best response
Let be a strategic game (N, (Ai )iN , (ui )iN ).

The set of best responses, for player i, to strategy si is

BR(si ) = {ai Ai | ui (si , ai ) = max

u i (si , ai )}
ai Ai

Those are the actions that give maximum pay-off provided the other players do not
change their strategies.
Best response: examples

Quiet Fink Bach Stravinsky

Quiet 2,2 0,3 Bach 2,1 0,0
Fink 3,0 1,1 Stravinsky 0,0 1,2

Stag Hare Head Tail

Stag 2,2 0,1 Head 1,-1 -1,1
Hare 1,0 1,1 Tail -1,1 1,-1

What is the best response of player 1 to

game strategy profile best response

PriDil (F,F)
BoS (B,S)
Stag Hunt (H,H)
Mat Penn (H,T)
Pure Nash equilibrium
A pure Nash equilibrium is a strategy profile a = (a1 , . . . , an ) such that

no player i can be better off choosing an action different from ai ,

given that every other player j adheres to aj

for every player i and for every action ai Ai it holds

ui (ai , ai ) > ui (ai , ai ).

Equivalently, for every player i and for every action ai Ai it holds

ai BR(ai ).
Pure Nash Equilibrium
2 Is a strategy profile in which all players are happy.
2 Identified with a fixed point of an iterative process of computing a best
response.
2 However, the game is played only once!
2 GT deals with the existence and analysis of equilibria assuming rational
behavior.
players try to maximize their benefit
2 GT does not provide algorithmic tools for computing such equilibrium if one
exists.
Pure Nash equilibria, examples

Quiet Fink Bach Stravinsky

Quiet 2,2 0,3 Bach 2,1 0,0
Fink 3,0 1,1 Stravinsky 0,0 1,2

Stag Hare Head Tail

Stag 2,2 0,1 Head 1,-1 -1,1
Hare 1,0 1,1 Tail -1,1 1,-1
Pure Nash equilibria, examples

Quiet Fink Bach Stravinsky

Quiet 2,2 0,3 Bach 2,1 0,0
Fink 3,0 1,1 Stravinsky 0,0 1,2

Stag Hare Head Tail

Stag 2,2 0,1 Head 1,-1 -1,1
Hare 1,0 1,1 Tail -1,1 1,-1

2 Prisoners Dilemma, (Fink, Fink).

2 Bach or Stravinsky, (Bach, Bach), (Stravinsky, Stravinsky).
2 Stag Hunt, (Stag, Stag), (Hunt, Hunt).
2 Matching Pennies, none.
Example: Sending from s to t

2 We have a graph G = (V, E) and two vertices s, t V .

2 There is one player for each vertex v V , v 6= t.
2 The set of actions for player u is NG (u).
2 A strategy profile is a set of vertices (v1 , . . . , vn1 ).
2 Pay-offs are defined as follows:
player u gets 1 if the shortest path joining s to t in the digraph induced by
v1 , . . . , vn1 contains (u, vu ), otherwise gets 0.
Sending from s to t: pay-offs

s b b b b
t

Red nodes get pay-off 1, blue nodes get pay-off 0.

Is a Nash equilibrium?
Pure Nash equilibrium
2 First notion of equilibria for non-cooperative games.
2 There are strategic games with no pure Nash equilibrium.
2 There are games with more than one pure Nash equilibrium.
2 How to compute a Nash equilibrium if there is one?
Exercise
Consider the game of major difference:
Two players select, simultaneously a number in the interval [0, 1], what they get
depends on the difference between the selected numbers as follows:

u1 (s1 , s2 ) = u2 (s1 , s2 ) = (s1 s2 )2 .

Analyse the best response for player two to players one selection:
1. s1 = 0.4
2. s1 = 0.5
3. s1 = 0.7
Has the game a Nash equilibrium?
Mixed strategies
We have a strategic game = (N, (Ai )iN , (ui )iN ).
Until now players are selecting as strategy an action.
When each player i is allowed to select as strategy a distribution i on the set of
actions Ai we have a mixed strategy.
A mixed strategy profile is a combination = (1 , . . . , n ) of mixed strategy
profiles.
In the case that the number of actions for player i is m a mixed strategy profile is
a tuple (p1 , . . . , pm ) for which
X
m
pi = 1
i=1
The utility of a mixed strategy
The utility function for player i of mixed strategy profile is the expected utility
under the joint distribution described by i .

X
Ui () = 1 (s1 ) . . . n (sn )ui (s)
sA1 An
Mixed Nash equilibrium

A mixed Nash equilibrium is a profile = (1 , . . . , n ) such that no player i can

get better utility choosing a distribution different from i , given that every other
player j adheres to j .

Theorem (Nash): Every strategic game has a mixed Nash equilibrium.

A Nash equilibrium for the matching pennies game
What are the best responses for player two to the mixed strategies for player 1:
2 (1/4, 3/4)
2 (1, 0)
2 (1/2, 1/2)

Person 2
Head Tail
Head 1,-1 -1,1
Person 1
Tail -1,1 1,-1
From a computational point of view, mixed strategies present an additional
representation problem.
In CS we can store only rational numbers. It is known
2 For two player game there are always mixed Nash equilibrium with rational
probabilities.
2 There are three player games without rational mixed Nash equilibrium.
[Schoenebeck and Vadhan: eccc 51, 2005]

Different notions of approximate Nash equilibria

A characterization of Nash equilibria
Theorem: Strategy i is the best response to i iff any pure strategy to which i
asigns positive probability is a best response to i .
Exercice: Resource allocation game
2 We have 3 players each one of them has a job to print. Player one wants to
print a 4Mb job, player two a 6Mb job and player 3 a 10Mb job.
2 The system has two identical printers A and B.
2 Each player has to select the printer for its job
2 A printer process the received jobs in time proportional to the total load.
2 The printed pages are accesible only after the printer stops.
2 The cost for a user is the total load in the selected printer.
Formalize the problem as a 3-player strategic game and find all its Nash equilibria.