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NF and Extensive Form Games

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24 views11 pages

NF and Extensive Form Games

Uploaded by

Kavisha Patel
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© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Game Theory II: Normal Form and Extensive Form Games

Recap: Mixed Strategy


A probability distribution over pure strategies.
Nash Equilibrium in mixed strategies:
A strategy profile such that a player maximises payoff given the opponent plays it's mixed
equilibrium strategy

Example: the matching penny game


- Player A does not have a dominant strategy – one that gives better payoff overall
- Same with b

Equilibrium:

- No dominant strategies; no equilibrium in dominant strategies

- Iterated deletion of dominated strategies doesn’t help

- No pure strategy Nash equilibrium, best responses don’t meet

Nash equilibrium in mixed strategies:


- Dealing with probabilities and expected payoffs
= expected payoff calculations

When to know when to play ? For player A

- A plays if Expected U > Expected Down

- If Q < ½ , A should choose U

- If Q> ½ a should choose D

For player B: What are the circumstances it should go left or right?


On a graph:

Best responses

- A chooses U if q ≤ ½
- B chooses L if p ≥ 1/2

Where the two lines meet = Nash equilibrium

Where:

Therefore:

- There is a Nash equilibrium in mixed strategies

- Even though there was no Nash equilibrium in pure strategies

Note: There will always be at least one Nash equilibrium. If there is none in pure strategies,
there will be one in mixed strategies.

Coordination games: EXAMPLE 2:


- CANNOT BE SOLVED
Example 3:

- Still (U,L) (D,R) for pure strategy Nash equilibria

- But both would rather go down and right

- Better for BOTH players to pick down and right so they will do this

- Although this is a coordination game, there is no coordination problem as both prefer


one nash equilibrium over another
So, coordination games can lead to a coordination problem or they both prefer one nash
equilibrium over another

Coordination problems:

- Can only arise in games which have multiple Nash equilibria in pure strategies where
players prefer different Nash equilibria

- No clear prediction as to how the game is played

- Mixed strategy Nash equilibrium can give guidance

- Interpretation mixed strategy Nash equilibrium: The distribution of choices when a


large number of players play this game once

Example IV:
Mapping:
Summary of game:

- A has dominant strategy U and B has dominant strategy L

- Equilibrium in dominant strategies & Nash equilibrium (U,L)

- The equilibrium mixed strategies reflects this by putting 100% probability on the
dominant strategies

Dominant strategy game 5: Prisoners Dilemma


Summary:

- Again, the Nash equilibrium in mixed strategies is degenerated, i.e. it assigns


probabilities of 100% to the dominant strategies.
- Observe: Although (D,R) yields the higher payoffs for both players, equilibrium mixed
strategies assign 0 probabilities to this strategy

Recap:

- So far only normal form games considered, i.e.

- One-shot games with simultaneous moves (and all the other usual assumptions)

- In reality, subjects do not always decide simultaneously

Extensive form games:

1. Set of players: A, B

2. 2 Oder of moves: A starts, then B

3. 3 Set of actions:AA={U,D},AB={L,R}

4. 4 Information players have: B can observe A

5. 5 Payoffs

(The other assumptions stay unchanged )

- We need to know WHO STARTS – ORDER OF MOVES MATTER


- Represented by game trees

- Game tree consists of:

o Decision nodes: associated with players

o Branches: representing the actions that can be taken (payoff nodes)

- Starting from the normal form game Then draw the corresponding game tree

B can observe what A does, so they have more information than A

Normal form vs extensive form:

Subgame-perfect equilibrium is a strategy profile that generates a Nash equilibrium in every


subgame.

Subgame A subgame starts at a decision node contains everything underneath it.

Subgames:
Subgame- perfect equilibrium:

- Subgame N3: B chooses R since 4 > 2

- Subgame N2: B chooses L since 6 > 3

- Subgame N1: A chooses D since 6 > 4

- Subgame perfect equilibrium (D, R)

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