Extensive Game with Perfect

Information
M Satpathy

Book: Intro to GT, Osborne

A course on GT: Osborne and Rubinstein
Extensive to matrix form

Acquiesce Fight

In 2,1 0,0
Out 1,2 1,2

In matrix form players moves occur simultaneously

Player does not know the actions taken by other
Inc does not know what Entrant is doing
Backward induction
• Looking forward and reasoning backward
• Inc and Challenger : rational players/ they have common knowledge
• If Entrant enters, Inc gains by acquiesce

(Inc, Acq)
• Exactly one root node (empty history)
• Decision node (branching)
• Terminal node (terminal history)
• Only one way to proceed: paths
• No cycles
Subgames

Let Ͳ be an extensive Game.

For any non-terminal h of Ͳ, subgame Ͳ(h) following h is the following
extensive game. Two proper subgames
2 proper subgames
Subgame equilibrium

A perfect subgame equilibrium is a strategy profile s* such that in no subgame can any player i
do better by choosing a profile different from si* given every other player j sticks to sj*

(In, Acquise) is a perfect subgame equilibrium

(out,fight) is not a perfect subgame equilibrium
Subgame perfect equilibrium and Nash Equilibrium
• Every subgame perfect equilibrium is a Nash E.
 1
A B
2
C D d
C D
1 AE a c
E c
F AF b c
b BE d d
a
BF d d

Player 1 has 4 strategies: AE, AF, BE, BF

AE a c
AF b c
B d d
The set of Nash Equilibria of an extensive game corresponds to the
Nash Equilibria of the strategic game in which the set of actions of each
player is the set of his reduced strategies
 1
A B
2
C D 2,1

1 0,1
E F

0,0 1,2
 Ch Ext Game with Imperfect Info
In OUT

Inc

Acq Fight

Ch Ch

Acq Acq
Fight Fight

Staregies for Challenger: In, Fight; In, Acq; out, Fight; out, Acq
Inc: Acq; Fight
 Ch Ext Game with Imperfect Info
In OUT

Inc
0,3 Inc Acq Fight
Acq Fight Cha

Ch
In  Acq 1,2 ½, 3/2
Ch
Acq Acq In  Fight 3/2, 1/2 -1, -1
Fight Fight
Out  Acq 0,3 0,3
1,2 3/2,1/2 ½, 3/2
-1,-1 OutFight 0,3 0,3

Staregies for Challenger: In, Fight; In, Acq; out, Fight; out, Acq
Inc: Acq; Fight
 1 Backward Induction
Going forward, reasoning backward

2
2

2,4 1
8,3 3,2

1,0 0,1
 1 Backward Induction

2
2

2,4 1
8,3 3,2

1,0 0,1
 1 Backward Induction
A B

2
2
Y C

2,4 1
8,3 3,2
X Y

1,0 0,1

Strategy for 1: BX

Staretegy for 2: C;Y
 1 Backward Induction
A B

2
2
Y C

2,4 1
8,3 3,2
X Y

1,0 0,1

Strategy for 1: BX

Staretegy for 2: C;Y
 1 Backward Induction
A B

2
2
Y C

2,4 1
8,3 3,2
X Y

1,0 0,1

Look at the uncrossed edges

Strategy for P1: BX
Staretegy for 2: C;Y
 1 Backward Induction
A B Y P C Q
AX 2,4 8,3
2 AY
2
P BX 3,2 1,0
Y C Q BY 0,1

2,4 1
8,3 3,2
X Y

1,0 0,1

Look at the uncrossed edges

Strategy for P1: BX
Staretegy for 2: C;Y
 1 Backward Induction: Problem with
A B

2
2
E
Y F
D

3,2
2,3 4,1 0,1

Backward induction does not give us any answer

Strategy for 1: If P2 plays F, P1 shd play B
If P2 plys D, P1 shd play A
 Ch Ext Game with Imperfect Info
In OUT

Inc
Inc Acq Fight
Acq Fight Cha

Ch
In  Acq 1,2 ½, 3/2
Ch
Acq Acq In  Fight 3/2, 1/2 -1, -1
Fight Fight
Out  Inc 0,3 0,3
4,1 0,2 5,1 1,0
OutFight 0,3 0,3

Another limitation of Backward induction

 P q

A
1 Backward Induction
AX 2,4 8,3
B
AY 2,4 8,3
2
2 BX 3,2 1,0
q q
P p
BY 3,2 0,1

2,4 1
8,3 3,2
X Y

1,0 0,1

Strategy for 1: BX

Staretegy for 2: C;Y
 P q

1 Backward Induction
A B AX 2,4 8,3

2
AY 2,4 8,3
2
q q BX 3,2 1,0
P p
BY 3,2 0,1
2,4 1
8,3 3,2
X Y

1,0 0,1

Strategy for 1: BX

Staretegy for 2: C;Y
 P q
1 Backward Induction
A B A 2,4 8,3

2
2
q q B 3,2 1,0
P p

2,4 1
8,3 3,2
X Y

1,0 0,1

Strategy for 1: BX

Staretegy for 2: C;Y
 A
1 Subgame
B

2
2
q S
P R

2,4 1
8,3 3,2
X Y

1,0 0,1

Strategy for 1: BX

Staretegy for 2: C;Y
 A
1 Subgame for Ext games with PI
B

2
2
q S
P R

2,4 1
8,3 3,2
X Y

1,0 0,1

Proper subgames

The whole tree is also a subgame

Sub game
• Start from the smallest subgame (containing terminal nodes)

• Determine the action that a rational player would take

• Replace the subgame with payoffs

• Repeat
 A
1
B

2 2
2
q S
P R

4,1 1
0,2 5,1 1,0 3,2 2,3
 A
1
B

2 2
2
q S
P R

4,1 1
0,2 5,1 1,0 3,2 2,3

Treat this subgame as a new game

 A
1
B

2
2
q 2,3
S
P R

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

Treat this subgame as a new game

 1

L R
C
2
2
2,3
P q P
q
4,1 5,1
1
S T
0,2 1,0
3,2 2,3
P q
L 4,1 0,2
C 5,1 1,0
R 2,3 2,3
 1

L R
C
2
2
2,3
P q P
q
4,1 5,1
1
S T
0,2 1,0
3,2 2,3
P q
L 4,1 0,2
C 5,1 1,0
R 2,3 2,3
Subgame Perfect Equilibrium
• To find subgame perfect equilibrium
• Use backward induction
• If BI fails use technique of normal form equilibrium
An Example: IGT Osborne
An Example: IGT Osborne: Subgame perfect
equilibrium

4 subgames:
4 best reponsee

FHK (C, FHK) is an equilibrium: subgame perfect

FIK ( C , GHK), (D,GHK), (E, GHK)
GHK
GIK
An Example: IGT Osborne: Subgame perfect
equilibrium

F H K (C, FHK) is an equilibrium: subgame perfect F G H I K

F I K ( C , GHK), (D,GHK), (E, GHK)
C 3,0 1,0
GHK
GIK D 1,1 2,1 1,3

E (1,3) (1,3) (1,3) (1,3) (1,3)