Extensive Form Games

ECON2112

Extensive Form Games

References

Perfect Information Games (Week 6)

Dixit & Skeaths book: Chapter 3.

Osbornes book: Chapters 5 and 7.

Extensive Form (Week 7)

Dixit & Skeaths book: Chapter 6.

Osbornes book: Chapter 7 and chapter 10 , pp. 313323.

Extensive Form Games

Introduction

A perfect information game is an extensive form game where

players always know all their opponents past moves.

In an extensive form game, a player may not know all the past
history of moves when is his turn to move.

Extensive Form Games

Introduction

Example (A game of perfect information)

1
L

2
a

2
b

2, 1
0, 0
1, 3
1, 3
When player 2 has to move, he knows what has been the move of
player 1.

Extensive Form Games

Introduction

Example (An extensive form game without perfect information)

1
L

R
2

2, 1
0, 0
1, 3
1, 3
When player 2 has to move, he does not know what has been the
move of player 1.

Extensive Form Games

Definitions and Terminology

1
3

2
3

1
L

R
2

3
2,1,2

3,1,0

3
f

2,3,1 1,0,8 1,2,3 3,4,1 5,3,4 3,6,1 2,4,1 1,2,0

The game starts at the open circle and continues along the
branches according to Natures and players moves.

N represents Nature.

Black circles and the open circle (the root of the game tree) are
decision nodes.

Extensive Form Games

Definitions and Terminology

1
3

2
3

1
L

R
2

3
2,1,2

3,1,0

3
f

2,3,1 1,0,8 1,2,3 3,4,1 5,3,4 3,6,1 2,4,1 1,2,0

At every ending node there is an assignment of payoffs to players.

Dotted lines are called information sets. An information set

contains the decision nodes that the player whose turn it is to
move cannot tell appart.

Information sets can be singletons.

Extensive Form Games

Definitions and Terminology

1
3

2
3

1
L

R
2

a
3

2,1,2

3,1,0

b
3

2,3,1 1,0,8 1,2,3 3,4,1 5,3,4 3,6,1 2,4,1 1,2,0

When player 1 has to move he does not know what has been
Natures move. But he knows the probabilities.

When player 2 is called to move, he does not know whether

player 1 chose L or R.

Player 3 knows in his singleton information which one has been

Natures move, he also knows that player 1 chose R and that
player 2 chose a.

Extensive Form Games

N

Definitions and Terminology

1
3

2
3

1
L

R
2

a
3

2,1,2

3,1,0

b
3

2,3,1 1,0,8 1,2,3 3,4,1 5,3,4 3,6,1 2,4,1 1,2,0

Information sets are labeled by the player who moves at that

information set.

Players have the same set of moves available at every decision

node inside the same information set.

A pure strategy is a plan of action for the game that tells which
move to take at every information set where the player moves.

Extensive Form Games

Definitions and Terminology

1
3

2
3

1
L

R
2

a
3

2,1,2

3,1,0

b
3

2,3,1 1,0,8 1,2,3 3,4,1 5,3,4 3,6,1 2,4,1 1,2,0

Player 1 set of pure strategies: S1 = {L, R }.

Player 2 set of pure strategies: S2 = {a, b}.

Player 3 set of pure strategies: S3 = {ec , ed , fc , fd }.

Extensive Form Games

Definitions and Terminology

1
3

2
3

1
L

R
2

a
3

2,1,2

3,1,0

b
3

2,3,1 1,0,8 1,2,3 3,4,1 5,3,4 3,6,1 2,4,1 1,2,0

There is a unique path from the root to each decision node. (And
from the root to each ending node.)

Extensive Form Games

Information Sets, Perfect Recall and Subgames

Information Sets

An information set contains all the information that a player

possesses when he has to move.

For each information set of a player, this player cannot distinguish

between decision nodes contained in that information set.

Every decision node inside the same information set must have
the same set of choices available.

Extensive Form Games

Information Sets, Perfect Recall and Subgames

Perfect Recall
We only consider extensive form games with perfect recall. Perfect
recall means that players remember all his previous moves and
whatever they knew before.

Example (Extensive form that does not satisfy perfect recall)

1
L

2
a

2
b

c
1

Extensive Form Games

Information Sets, Perfect Recall and Subgames

Subgames
A subgame is a part of an extensive form game that could be
considered as a separate game.

Extensive Form Games

Information Sets, Perfect Recall and Subgames

Example
1
L

1
A

1
C

B
2

D
2

2, 1 2, 0 2, 0 1, 4 4, 1

0, 0

0, 0

1, 4

We say that this game has three subgames.

The entire game is also considered as a subgame.

Extensive Form Games

Information Sets, Perfect Recall and Subgames

Example (A game without proper subgames)

1
L

R
2

B
1

a
4,1

b
1,4

A
a
1,2

b
0,2

3,1

2,2

This extensive form game has only one subgame, which is the
entire game.

We say that this game has no proper subgames.

Extensive Form Games

Strategies

We can distinguish the following types of strategies

Definition (Pure Strategy)

In an extensive form game, a pure strategy is a plan of action for the
entire game, that tells the player which particular choice to take at
every possible information set.

Definition (Mixed Strategy)

A mixed strategy is a probability distribution over the set of pure
strategies.

Definition (Behavioral Strategies)

In an extensive form game, a players behavioral strategy specifies at
every information set where he has to move a probability distribution
over the choices that follow.

Extensive Form Games

Strategies

Example
1
L

R
2

B
1

4,1

1,4

A
a
1,2

b
0,2

3,1

2,2

La, Lb, Ra and Rb are pure strategies for player 1.

1 La + 1 Lb + 1 Rb
3

(1L+
2
(1L+
2

is an example of a mixed strategy for player 1.

3
3
1
R
,
a
)
is
an example of
2
1
R , B , a) is an example
2

a behavioral strategy for player 1.

of a behavioral strategy profile.

Extensive Form Games

Nash Equilibrium

Definition (Nash Equilibrium)

The Nash equilibrium of an extensive form game is the Nash
equilibrium of its normal form representation.

Extensive Form Games

Nash equilibrium

Example (Battle of the Sexes with Entry)

1
Out

In
1
T

2,5

B
2

4, 1

0, 0

0, 0

1, 4

OutT
OutB
InT
InB

L
2, 5
2, 5
4, 1
0, 0

R
2, 5
2, 5
0, 0
1, 4

For simplicity, when computing Nash equilibria, we can collapse

strategies OutT and OutB into the strategy Out and solve the
following game:

Extensive Form Games

Nash equilibrium

Example
Out
InT
InB

L
2, 5
4, 1
0, 0

R
2, 5
0, 0
1, 4

NE = (Out , L + (1 )R ) : 0, 12

{(InT , L)}

However, we are interested in the Nash equilibria of the original

game.

Extensive Form Games

Nash equilibrium

Example

Out

In
1
T

2,5

B
2

L
4, 1

R
0, 0

L
0, 0

R
1, 4

OutT
OutB
InT
InB

L
2, 5
2, 5
4, 1
0, 0

R
2, 5
2, 5
0, 0
1, 4

The set of Nash equilibria is:

 
(OutT + (1 )OutB , L + (1 )R ) : [0, 1], 0, 12

{(InT , L)}.

Extensive Form Games

Backwards Induction

Example
Out

In
1
T

2,5

B
2

4, 1 0, 0
Is the entire set of Nash equilibria

0, 0

1, 4

 
(OutT + (1 )OutB , L + (1 )R ) : [0, 1], 0, 12

{(InT , L)}.
reasonable?

Extensive Form Games

Backwards Induction

Definition (Backwards Induction/Informal Idea)

Players should make their choices in a way consistent with deductions
about other players rational behavior in the future.

How can we apply the principle of backwards induction in

extensive form games?

To respond to that, we have to make precise what rational

behavior in the future means.

One possibility is to require a Nash equilibrium in every subgame.

Extensive Form Games

Subgame Perfect Equilibrium

Definition (Subgame Perfect Equilibrium)

A strategy profile is a Subgame Perfect Equilibrium of an extensive
form game if it induces a Nash equilibrium in every subgame.

Subgame Perfect Equilibrium

It is one possible implementation of idea of backwards induction

in extensive form games.

It is equivalent to backwards induction in games of perfect

information.

It is computed by first resolving the last subgames in the game.

Then we substitute the subgames by the expected payoff induced

by the Nash equilibria of the subgame.

And we keep resolving last subgames in the same way until we

get to the root of the game.

Extensive Form Games

Subgame Perfect Equilibrium

Example
Out

In
1
T

2,5

B
2

4, 1 0, 0 0, 0 1, 4
The last subgame has three Nash equilibria, (T , L), (B , R ) and


4
T + 51 B , 15 L + 54 R .
5

If players use (T , L), we obtain the SPE (In, T , L).

If players use (B , R ), we obtain the SPE (Out , B , R )

If players use 45 T + 15 B ,
15 L + 54 R , we obtain the SPE

Out , 45 T + 51 B , 15 L + 54 R

Extensive Form Games

Subgame Perfect Equilibrium

Example
Out
2,5

In
4, 1

The last subgame has

three Nash equilibria, (T , L), (B , R ) and
1
1
4
4
T
+
B
,
L
+
R
.
5
5
5
5

If players use (T , L), we obtain the SPE (In, T , L).

If players use (B , R ), we obtain the SPE (Out , B , R )

If players use 45 T + 15 B ,
15 L + 54 R , we obtain the SPE

Out , 45 T + 51 B , 15 L + 54 R

Extensive Form Games

Subgame Perfect Equilibrium

Example
Out
2,5

In
1, 4

The last subgame has

three Nash equilibria, (T , L), (B , R ) and
1
1
4
4
T
+
B
,
L
+
R
.
5
5
5
5

If players use (T , L), we obtain the SPE (In, T , L).

If players use (B , R ), we obtain the SPE (Out , B , R )

If players use 45 T + 15 B ,
15 L + 54 R , we obtain the SPE

Out , 45 T + 51 B , 15 L + 54 R

Extensive Form Games

Subgame Perfect Equilibrium

Example
Out

In

2,5

4 4
,
5 5

The last subgame has

three Nash equilibria, (T , L), (B , R ) and
1
1
4
4
T
+
B
,
L
+
R
.
5
5
5
5

If players use (T , L), we obtain the SPE (In, T , L).

If players use (B , R ), we obtain the SPE (Out , B , R )

If players use 45 T + 15 B ,
15 L + 54 R , we obtain the SPE

Out , 45 T + 51 B , 15 L + 54 R

Extensive Form Games

Subgame Perfect Equilibrium

Remember that in game Battle of the Sexes with entry the set of
Nash equilibria was

 
(OutT + (1 )OutB , L + (1 )R ) : [0, 1], 0, 12

{(InT , L)}.

We have just seen that the set of subgame perfect equilibria is




(In, T , L), (Out , B , R ), Out , 45 T + 15 B , 51 L + 45 R

Which in terms of mixed strategies is:

(InT , L), (OutB , R ),

4
OutT
5

+ 15 OutB , 51 L + 45 R

Extensive Form Games

Subgame Perfect Equilibrium

Example
1
L

1
A

1
C

B
2

D
2

2, 1 2, 0 2, 0 1, 4 4, 1 0, 0 0, 0 1, 4
The subgame in the left has three Nash equilibria

The subgame in the right has three Nash equilibria

Therefore, there are nine subgame perfect equilibria.

Extensive Form Games

Subgame Perfect Equilibrium

Example
1
L

A
B

a
2, 1
2, 0

b
2, 0
1, 4

C
D

c
4, 1
0, 0

d
0, 0
1, 4

The subgame in the left has three Nash equilibria

The subgame in the right has three Nash equilibria

Therefore, there are nine subgame perfect equilibria.

Extensive Form Games

Subgame Perfect Equilibrium

Subgame Perfect Equilibrium. Properties.

Every subgame perfect equilibrium is a Nash equilibrium.

Not every Nash equilibrium is subgame perfect.

However, subgame perfections has no bite if the extensive form

game does not have proper subgames.

Extensive Form Games

Subgame Perfect Equilibrium

Example (A game without proper subgames)

1
L

R
2

B
1

a
4,1

b
1,4

A
a
1,2

b
0,2

3,1

2,2

If a game has no proper subgames, then every Nash equilibrium

is subgame perfect.

But, can we still use the idea of backwards induction to find

equilibria that are not self-enforcing?

Extensive Form Games

Subgame Perfect Equilibrium

Example (A game without proper subgames)

1
L

R
2

B
1

a
4,1

b
1,4

A
a
1,2

b
0,2

3,1

2,2

Player 1 will always choose a over b.

Given this, player 2 will always choose B.

Given this, player 1 will choose R

Only (R , B , a) is reasonable. (It is also the only strategy profile

that survives iterated deletion of strictly dominated strategies.)

Extensive Form Games

Subgame Perfect Equilibrium

Example
1
L

3
2, 2, 4

e
1, 3, 2

f
0, 1, 1

e
3, 3, 0

There are no proper subgames.

Every Nash Equilibrium is subgame perfect.

Is the Nash equilibrium (L, bd , e) reasonable?

f
0, 0, 1

0, 2, 3

Extensive Form Games

Subgame Perfect Equilibrium

Example
The normal form representation is:
ac
2, 2, 4
3, 3, 0

L
R

ad
2, 2, 4
0, 2, 3

bc
1, 3, 2
3, 3, 0

bd
1, 3, 2
0, 2, 3

e
L
R

ac
2, 2, 4
0, 0, 1

ad
2, 2, 4
0, 2, 3

bc
0, 1, 1
0, 0, 1
f

Note that no strategy is dominated.

bd
0, 1, 1
0, 2, 3

Extensive Form Games

Subgame Perfect Equilibrium

Example
1
L

3
2, 2, 4

e
1, 3, 2

f
0, 1, 1

e
3, 3, 0

0, 2, 3

0, 0, 1

Is the Nash equilibrium (L, bd , e) reasonable?

Can we use a backwards induction argument to discard

(L, bd , e)?