Static (or Simultaneous-

Move) Games of Complete

Information

Introduction to Games
Normal (or Strategic) Form
Representation

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Outline of Static Games of Complete
Information
 Introduction to games
 Normal-form (or strategic-form)
representation
 Iterated elimination of strictly dominated
strategies
 Nash equilibrium
 Review of concave functions, optimization
 Applications of Nash equilibrium
 Mixed strategy Nash equilibrium
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Agenda
 What is game theory
 Examples
 Prisoner’s dilemma
 The battle of the sexes
 Matching pennies

 Static (or simultaneous-move) games of

complete information
 Normal-form or strategic-form representation

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What is game theory?
 We focus on games where:
 There are at least two rational players
 Each player has more than one choices
 The outcome depends on the strategies chosen by all
players; there is strategic interaction

 Example: Six people go to a restaurant.

 Each person pays his/her own meal – a simple
decision problem
 Before the meal, every person agrees to split the bill
evenly among them – a game

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What is game theory?
 Game theory is a formal way to analyze
strategic interaction among a group of rational
players (or agents) who behave strategically

 Game theory has applications

 Economics
 Politics
 etc.

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Classic Example: Prisoners’ Dilemma
 Two suspects held in separate cells are charged with a major
crime. However, there is not enough evidence.
 Both suspects are told the following policy:
 If neither confesses then both will be convicted of a minor
offense and sentenced to one month in jail.
 If both confess then both will be sentenced to jail for six
months.
 If one confesses but the other does not, then the confessor
will be released but the other will be sentenced to jail for
nine months.
Prisoner 2
Mum Confess
Mum -1 , -1 -9 , 0
Prisoner 1
Confess 0 , -9 -6 , -6
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Example: The battle of the sexes
 At the separate workplaces, Chris and Pat must choose to
attend either an opera or a prize fight in the evening.
 Both Chris and Pat know the following:
 Both would like to spend the evening together.
 But Chris prefers the opera.
 Pat prefers the prize fight.

Pat
Opera Prize Fight
Opera 2 , 1 0 , 0
Chris
Prize Fight 0 , 0 1 , 2

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Example: Matching pennies
 Each of the two players has a penny.
 Two players must simultaneously choose whether to
show the Head or the Tail.
 Both players know the following rules:
 If two pennies match (both heads or both tails) then
player 2 wins player 1’s penny.
 Otherwise, player 1 wins player 2’s penny.

Player 2
Head Tail
Head -1 , 1 1 , -1
Player 1
Tail 1 , -1 -1 , 1

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Static (or simultaneous-move) games
of complete information
A static (or simultaneous-move) game consists of:
 A set of players (at least  {Player 1, Player 2, ...
two players) Player n}
 For each player, a set of
 S1 S2 ... Sn
strategies/actions
 Payoffs received by each
player for the  ui(s1, s2, ...sn), for all
combinations of the s1S1, s2S2, ... snSn.
strategies, or for each
player, preferences over
the combinations of the
strategies

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Static (or simultaneous-move) games
of complete information
 Simultaneous-move
Each player chooses his/her strategy without

knowledge of others’ choices.
 Complete information
 Each player’s strategies and payoff function are
common knowledge among all the players.
 Assumptions on the players
 Rationality
• Players aim to maximize their payoffs

• Players are perfect calculators

 Each player knows that other players are rational

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Static (or simultaneous-move) games
of complete information
 The players cooperate?
No. Only noncooperative games


 The timing
 Each player i chooses his/her strategy si without
knowledge of others’ choices.
 Then each player i receives his/her payoff
ui(s1, s2, ..., sn).
 The game ends.

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Definition: normal-form or strategic-
form representation
 The normal-form (or strategic-form)
representation of a game G specifies:
A finite set of players {1, 2, ..., n},
 players’ strategy spaces S1 S2 ... Sn and

 their payoff functions u1 u2 ... un

where ui : S1 × S2 × ...× Sn→R.

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 Normal-form representation: 2-player
game
 Bi-matrix representation
 2 players: Player 1 and Player 2
 Each player has a finite number of strategies
 Example:
S1={s11, s12, s13} S2={s21, s22}

Player 2
s21 s22
s11 u1(s11,s21), u2(s11,s21) u1(s11,s22), u2(s11,s22)

Player 1 s12 u1(s12,s21), u2(s12,s21) u1(s12,s22), u2(s12,s22)

s13 u1(s13,s21), u2(s13,s21) u1(s13,s22), u2(s13,s22)

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Classic example: Prisoners’ Dilemma:
normal-form representation
 Set of players: {Prisoner 1, Prisoner 2}
 Sets of strategies: S1 = S2 = {Mum, Confess}
 Payoff functions:
u1(M, M)=-1, u1(M, C)=-9, u1(C, M)=0, u1(C, C)=-6;
u2(M, M)=-1, u2(M, C)=0, u2(C, M)=-9, u2(C, C)=-6

Players Prisoner 2
Strategies Mum Confess
Mum -1 , -1 -9 , 0
Prisoner 1
Confess 0 , -9 -6 , -6

Payoffs

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Example: The battle of the sexes
Pat
Opera Prize Fight
Opera 2 , 1 0 , 0
Chris
Prize Fight 0 , 0 1 , 2

 Normal (or strategic) form representation:

 Set of players: { Chris, Pat } (={Player 1, Player 2})
 Sets of strategies: S1 = S2 = { Opera, Prize Fight}
 Payoff functions:
u1(O, O)=2, u1(O, F)=0, u1(F, O)=0, u1(F, O)=1;
u2(O, O)=1, u2(O, F)=0, u2(F, O)=0, u2(F, F)=2

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 Example: Matching pennies
Player 2
Head Tail
Head -1 , 1 1 , -1
Player 1
Tail 1 , -1 -1 , 1

 Normal (or strategic) form representation:

 Set of players: {Player 1, Player 2}
 Sets of strategies: S1 = S2 = { Head, Tail }
 Payoff functions:
u1(H, H)=-1, u1(H, T)=1, u1(T, H)=1, u1(H, T)=-1;
u2(H, H)=1, u2(H, T)=-1, u2(T, H)=-1, u2(T, T)=1

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Example: Tourists & Natives
 Only two bars (bar 1, bar 2) in a city
 Can charge price of $2, $4, or $5
 6000 tourists pick a bar randomly
 4000 natives select the lowest price bar

 Example 1: Both charge $2

 each gets 5,000 customers and $10,000

 Example 2: Bar 1 charges $4, Bar 2 charges $5

 Bar 1 gets 3000+4000=7,000 customers and $28,000
 Bar 2 gets 3000 customers and $15,000

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Example: Cournot model of duopoly
 A product is produced by only two firms: firm 1 and
firm 2. The quantities are denoted by q1 and q2,
respectively. Each firm chooses the quantity without
knowing the other firm has chosen.
 The market price is P(Q)=a-Q, where Q=q1+q2.
 The cost to firm i of producing quantity qi is Ci(qi)=cqi.

The normal-form representation:

 Set of players: { Firm 1, Firm 2}
 Sets of strategies: S1=[0, +∞), S2=[0, +∞)
 Payoff functions:
u1(q1, q2)=q1(a-(q1+q2)-c), u2(q1, q2)=q2(a-(q1+q2)-c)
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One More Example
 Each of n players selects a number between 0 and
100 simultaneously. Let xi denote the number
selected by player i.
 Let y denote the average of these numbers
 Player i’s payoff = xi – 3y/5

 The normal-form representation:

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Solving Prisoners’ Dilemma
 Confess always does better whatever the other
player chooses
 Dominated strategy
 There exists another strategy which always does
better regardless of other players’ choices

Players Prisoner 2
Strategies Mum Confess
Mum -1 , -1 -9 , 0
Prisoner 1
Confess 0 , -9 -6 , -6

Payoffs

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Definition: strictly dominated strategy
In the normal-form game {S1 , S2 , ..., Sn , u1 , u2 , ...,
un}, let si', si"  Si be feasible strategies for player i.
Strategy si' is strictly dominated by strategy si" if
ui(s1, s2, ... si-1, si', si+1, ..., sn) si” is strictly
< ui(s1, s2, ... si-1, si", si+1, ..., sn) better than si’

for all s1 S1, s2 S2, ..., si-1Si-1, si+1 Si+1, ..., sn Sn.

regardless of other Prisoner 2

players’ choices Mum Confess
Mum -1 , -1 -9 , 0
Prisoner 1
Confess 0 , -9 -6 , -6

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Summary
 Static (or simultaneous-move) games of complete
information
 Normal-form or strategic-form representation

 Next time
 Dominated strategies
 Iterated elimination of strictly dominated strategies
 Nash equilibrium

 Reading lists
 Sec 1.1.A and1.1.B of Gibbons and Sec 2.1-2.5, 2.9.1
and 2.9.2 of Osborne
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