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Lecture 4
Dynamic games of complete
information
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Dynamic games
The strategic form of a game does not represent
the timing of moves
Hence plans of actions are fixed and cannot be
changed
In contrast, dynamic games capture the
sequential structure of a game
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For now, we consider extensive form games with
complete information, i.e. the utility function (or
the preferences) of each player is common
knowledge
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Dynamic games of complete
information
Extensive Form Representation
An extensive form representation of a game specifies:
Players
When each player has to move
The actions a player can use at each of his
opportunities to move
What a player knows at each of his opportunities to
move
Payoffs received by each player for each possible
outcome
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Game Trees
An extensive form game can be represented in a
game tree
This shows
who moves when (at the nodes)
their available actions (the branches)
Their available information
and the payoffs over all possible outcomes (at
the terminal nodes)
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Example 1
Player 1
L
R
Player 2 Player 2
l l r r
U
1
(L,l)
U
2
(L,l)
U
1
(L,r)
U
2
(L,r)
U
1
(R,l)
U
2
(R,l)
U
1
(R,r)
U
2
(R,r)
The preferences can be represented by a payoff
function over the outcomes
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Example 2
Player 1
L
R
Player 2 Player 2
l l r r
U
1
(L,l)
U
2
(L,l)
U
1
(L,r)
U
2
(L,r)
U
1
(R,l)
U
2
(R,l)
U
1
(R,r)
U
2
(R,r)
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This dashed line means that
player 2 does not know the
action played by player 1
Information set
It is a collection of decision nodes where:
The player has to move at every node in the
information set
When a player has to move, he cannot distinguish
the nodes belonging to the same information set
Example 1: player 1 has one info set, player 2 has
two info sets
Example 2: player 1 has one info set, player 2 has
one info set
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Note: What can an info set NOT look like
Player 1
Left Right
Player 2
l l r r
m
Player 1
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The two nodes in the
information set have
different number of
available actions, then
player 2 can distinguish
the node
This could be true only
assuming that player 1
does not remember his
move in the first node
Player 1
Strategies
A strategy is a complete description of a players
actions at all the information sets when its his
turn to move, e.g.
for player 2 to choose r after L and l after R, i.e. (r, l) .
Player 2 has 4 strategies: {(l,l),(l,r),(r,l),(r,r)}
Player 1
L R
Player 2 Player 2
l l r r
U
1
(L,l)
U
2
(L,l)
U
1
(L,r)
U
2
(L,r)
U
1
(R,l)
U
2
(R,l)
U
1
(R,r)
U
2
(R,r)
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A subgame starts at an information set with a single node n
- it contains all decision and terminal nodes following n
- an information set cannot belong to two different
subgames
Note: someone considers the whole game a subgame,
others do not consider the whole game a subgame.
In the following we use the first approach
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Definition of subgame:
perfect information, i.e. when choosing an action a
player knows the actions chosen by players moving
before her
i.e. all previous moves are observed before the next move is
chosen
Imperfect information when at least one player does
not know the history by the time he chooses.
At least one player does not know all the actions chosen by
players moving before her
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Dynamic games of perfect and
imperfect information
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In other words, when a game is of imperfect info, there
exists at least an information set with more than one
decision node
Player 1
Left Right
Player 2
l l r r
U
1
(L,l)
U
2
(L,l)
U
1
(L,r)
U
2
(L,r)
U
1
(R,l)
U
2
(R,l)
U
1
(R,r)
U
2
(R,r)
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Player 2 knows
that he is in the
information set,
but not in which
specific node
Example 1: Mini Ultimatum Game
Proposer (Player 1) can suggest one of two splits of
10: (5,5) and (9,1).
Responder (Player 2) can decide whether to accept or
reject (9,1), but has to accept (5,5). Reject leads to 0 for
both
Player 1
(9,1)
a r
9
1
0
0
(5,5)
5
5
Player 2
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Perfect information
Player 1 has one information set
Player 2 has one information set
One subgame
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Example 2
Imperfect information
Player 1 has one information set
Player 2 has one information set
One subgame
Player 1
Left Right
Player 2
l l r r
U
1
(L,l)
U
2
(L,l)
U
1
(L,r)
U
2
(L,r)
U
1
(R,l)
U
2
(R,l)
U
1
(R,r)
U
2
(R,r)
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Example 3
Imperfect information
Player 1 has one information set
Player 2 has two information sets
Two subgames
Player 1
Left Centre
Player 2
l l r r
U
1
(L,l)
U
2
(L,l)
U
1
(L,r)
U
2
(L,r)
U
1
(C,l)
U
2
(C,l)
U
1
(C,r)
U
2
(C,r)
Right
Player 2
U
1
(R,l)
U
2
(R,l)
U
1
(R,r)
U
2
(R,r)
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l r
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Example 4
Imperfect information
Challenger: one information set
Incumbent: one information set
One subgame
Challenger
Ready Unready
Incumbent
Fight
3
3
1
1
4
3
0
2
Out
2
4
Acquiesce Acquiesce Fight
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Challenger
Ready Unready
Incumbent
Fight
3
3
1
1
4
3
0
2
Out
2
4
Acquiesce Acquiesce Fight
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Challenger
In
Example 5
Imperfect information
Challenger: two information sets
Incumbent: one information set
Two subgames
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Representation of a sequential game
using the normal form
Case of two players: 1 and 2
Label the rows of the normal form with the player
1s strategies
Label the columns of the normal form with the
player 2s strategies
Compute the payoffs to the players for each possible
combination of strategies
Using The normal form representation is possible to
find all Nash equilibrium
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Challenger
Ready
Unready
Incumbent
Fight
3
3
1
1
4
3
0
2
Acquiesce Acquiesce Fight
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Player 1strategies: {Ready, Unready}
Player 2strategies: {(A, A), (A, F), (F, A), (F, F)}
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Player 1strategies: {Ready, Unready}
Player 2strategies: {(A, A), (A, F), (F, A), (F, F)}
Incumbent
(A, A) (A, F) (F, A) (F, F)
Challenger
Ready 3, 3 3, 3 1, 1 1, 1
Unready 4, 3 0, 2 4.3 0, 2
Three Nash equilibria
1. Ready, (A, F)
2. Unready, (A, A)
3. Unready, (F, A)
Representation of a static game using the
extensive form
A simultaneously game is equivalent to a sequential game
where the second player cannot observe the first
players move.
Consider the game:
It is equivalent to
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Player 2
L R
Player 1
T 1,1 0, 2
B 1,2 1,1
Player 1
T B
L R L R
Player 2
1
1
0
2
1
2
1
1
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Example 3
Player 1
Left Centre
Player 2
l l r r
U
1
(L,l)
U
2
(L,l)
U
1
(L,r)
U
2
(L,r)
U
1
(C,l)
U
2
(C,l)
U
1
(C,r)
U
2
(C,r)
Right
Player 2
U
1
(R,l)
U
2
(R,l)
U
1
(R,r)
U
2
(R,r)
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l r
Player 2
l, l l, r r, l r, r
Player 1 Left U
1
(L,l), U
2
(L,l) U
1
(L,l), U
2
(L,l) U
1
(L,r), U
2
(L,r) U
1
(L,r), U
2
(L,r)
Centre U
1
(C,l), U
2
(C,l) U
1
(C,l), U
2
(C,l) U
1
(C,r), U
2
(C,r) U
1
(C,r), U
2
(C,r)
Right U
1
(R,l), U
2
(R,l) U
1
(R,r), U
2
(R,r) U
1
(R,l), U
2
(R,l) U
1
(R,r), U
2
(R,r)
Example 4
Challenger
Ready Unready
Incumbent
Fight
3
3
1
1
4
3
0
2
Out
2
4
Acquiesce Acquiesce Fight
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Incumbent
Acquiesce Fight
Challenger Ready 3, 3 1,1
Unready 4, 3 0, 2
Out 2, 4 2, 4
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Challenger
Ready Unready
Incumbent
Fight
3
3
1
1
4
3
0
2
Out
2
4
Acquiesce Acquiesce Fight
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Challenger In
Example 5
Incumbent
Acquiesce Fight
Challenger In Ready 3, 3 1,1
In Unready 4, 3 0, 2
Out Ready 2, 4 2, 4
Out Unready 2, 4 2, 4