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D o m in a n c e

G5212: Game Theory

Mark Dean

Spring 2017
D o m in a n c e

Recap

So far we have
Explained what game theory is trying to do
Formally de…ned what we mean by a (strategic form) game
Introduced some classic games
Discussed the concept of mixed strategies
Today we will start to think about how to ‘solve’a game
i.e. make some predictions about how people will play the
game
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Rationality

To begin with, let’s see how far we can get with the
assumption of rationality
Should be familiar from last semester
In particular, let’s assume that
Each player has some belief about what the other player
will do
Chooses their action in order to maximize expected utility
given their beliefs
Does this allow us to make predictions about how players
will play the game?
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Example
Prisoner’s Dilemma
Bob
Confess Don’t Confess
Anne Confess 6; 6 0; 9
Don’t Confess 9; 0 1; 1

‘Confess’provides higher utility than ‘Don’t Confess’


regardless of what Bob thinks Anne will do
If we assume Anne and Bob are rational, then the only
possible outcome is that both play ‘Confess’
‘Confess’dominates ‘Don’t Confess’
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De…nition
A strategy s0i 2 Si strictly dominates s00i if 8s i 2 S i;

ui (s0i ; s i ) > ui (s00i ; s i ):

A strategy si is a strictly dominant strategy for player i if si


strictly dominates every strategy s00i 2 Si n fsi g.

Lemma
If i has a strictly dominant strategy, then
arg maxsi ui (si ; s i ) is independent of s i and is unique.
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De…nition
A strategy s0i 2 Si weakly dominates s00i if 8s i 2 S i;

ui (s0i ; s i ) ui (s00i ; s i )

and 9s0 i 2 S i ;

ui (s0i ; s0 i ) > ui (s00i ; s0 i ):

A strategy s0i 2 Si is a weakly dominant strategy for player


i if si weakly dominates every strategy s00i 2 Si n fsi g
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Dominance and Mixed Strategies

Example
Is D dominated in the following game?

Bob
L R
U 3; 0 0; 0
Anne
M 0; 0 3; 0
D 1; 0 1; 0

Not using the de…nition we have so far


But what about playing U half the time and M half the
time?
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Dominance and Mixed Strategies

De…nition
A strategy s0i 2 Si is strictly dominated by a mixed strategy
i 2 (Si ) if

ui (s0i ; s i ) < ui ( i ; s i ) 8s i 2 S i:
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Solving Games Using Dominance

If a game has a strictly dominant strategy for each player,


then using only rationality we can predict what will happen
Note that games that can be solved in this way are in some
sense not very interesting
Strategic element is e¤ectively switched o¤
What can we say about games that cannot be solved in
this way?
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Prisoner’s Dilemma
Example
Prisoner’s Dilemma
Bob
Confess Don’t Confess Go Bananas
Anne Confess 6; 6 0; 9 100; 100
Don’t Confess 9; 0 1; 1 1; 100

Bob now has the strategy ‘Go Bananas”


Confess is no longer dominant for Anne
BUT note that Go Bananas is strictly dominated for Bob
If Anne thinks that Bob is rational, then can conclude that
he will never go bananas
Once this strategy has been ruled out, Confess is once once
again strictly dominant for Anne
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Common Knowledge of Rationality

So far we have assumed that players are rational


We can additionally assume that rationality is common
knowledge
A knows that B is rational
B knows that A knows that B is rational
A knows that B knows that A knows that B is rational....
This justi…es solving games by iterated deletion of
strictly dominated strategies
However - note that common knowldege can be quite a
strong assumption....
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Iterated Deletion of Strictly Dominated Strategies

De…nition
Iterated Deletion of Strictly Dominated Strategies is described
by the following procedure
1 Delete all strategies that are strictly dominated. Go to 2.
2 In the remaining game, are there any strictly dominated
strategies? If Yes, go to 1. If No, done.
A game is called dominance solvable, or solvable by strict
dominance, if this procedure leads to a unique outcome.
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Example

Beauty Contest
Occurred in UK in 1930s.
Newspaper prints 100 photographs of women. People
choose the six "most beautiful" faces. Those who pick the
most popular face are eligible for a prize
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Example
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Example

Keynes (General Theory, 1936): “It is not a case of


choosing those [faces] that, to the best of one’s judgment,
are really the prettiest, nor even those that average opinion
genuinely thinks the prettiest. We have reached the third
degree where we devote our intelligences to anticipating
what average opinion expects the average opinion to be.
And there are some, I believe, who practice the fourth, …fth
and higher degrees.”
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Example

There are n > 1 players.


Simultaneously, each player submits a number xi between 0
and 100.
Payo¤: the player(s) whose number is closest to two thirds
of the average x receives a positive prize, everyone else gets
0.
x1 + x2 + ::: + xn
x= :
n

2 2
u(xi ; x i ) = 100 jxi xj if xi is closest to x
3 3
= 0 otherwise

Does this game have a dominant strategy?


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Example

Not quite
Although rationality does give us some predictive power
The average cannot be larger than 100.
Two thirds of the average cannot be larger than 23 100:
xi > 23 100 have a payo¤ of 0 for sure, and is strictly
dominated (by what?):
So we can use rationality to guess than no-one will play
hiver than 23 100
Can we do better?
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Example

Round 1:
The average cannot be larger than 100.
Two thirds of the average cannot be larger than 23 100:
xi > 23 100 is strictly dominated and so we can delete this
Round 2:
The average cannot be larger than 23 100.
2 2
Two thirds of the average cannot be larger than 3 3 100:
2
xi > 32 100 is strictly dominated:
Leads to a unique solution......
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Problems with IDSDS?

Example
Does IDSDS always give a sensible answer?

Bob
L R
Anne U 3; 4 4; 5
D 2; 1000000 0; 100000

IDSDS predicts U,R


Is this reasonable?
Bob would have to be REALLY sure that Anne is rational
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IDWDS

Example
Iterated Deletion of Weakly Dominated Strategies

Bob
L R
Anne U 1; 1 0; 0
D 0; 0 0; 0

This game is not solvable by IDSDS


But {U,L} is the only strategy pro…le that survives
deletion of weakly dominated strategies
IDWDS allows us to make sharper predictions, but....
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Order Matters in IDWDS

Example
Order Matters in IDWDS
Bob
L R
U 1; 1 0; 0
Anne
M 1; 1 2; 1
D 0; 0 2; 1

One could …rst eliminate U, then L, leaving {M,R} or


{D,R}
Or one could …rst eliminate D, then R, leaving {U,L} or
{M,L}

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