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Session 2

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ARYAMAN GUPTA
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8 views25 pages

Session 2

Uploaded by

ARYAMAN GUPTA
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Dominance. Strictly dominated strategies.

A solution in dominating strategies.


Set of rules of a game

1. who is playing—the group of players that strategically interacts


2. what they are playing with—the alternative actions or choices, the
strategies, that each player has available
3. when each player gets to play (in what order)
4. how much they stand to gain (or lose) from the choices made in the
game
Two principal representations of (the
rules of) a game
1. Normal (or strategic) form of a game: A complete list of who the
players are, what strategies are available to each of them,
and how much each gets. Example: Prisoners dilemma in tabular
format discussed earlier.
2. Extensive form: a pictorial representation of the rules. Its main
pictorial form is called the game tree.
Extensive form game
Transportation choice of player 1 and player 2
Answers the question
• Who: any individual who has a decision node in the game tree is a
player in the game.
• What: the branches that come out of a decision node represent the
different choices available at that point.
• When: for example, a node that is four branches removed from the
root is reached only after these first four choices have been made
Extensive form with simultaneous moves
• The extensive forms discussed before permit only one player to move at a time
• How to represent simultaneous moves within the extensive form?
• Notice that there is an oval that encircles the two (second-stage) decision
nodes of player 2.
• By collecting the two decision nodes into one oval we are signifying that
player 2 is unable to distinguish between the two nodes, that is, he cannot tell
whether the first decision of player 1 was c or n.
• The oval here is called an information set.
• Every extensive form game can be represented in strategic form. Every
strategic form game has at least one extensive form representation
Prisoners Dilemma in Extensive
form
Definition

• Information set: a collection of decision nodes that a player cannot


distinguish between.
• Strategy: a strategy for a player specifies what to do at every
information set at which the player has to make a choice.
How much: Von Neumann-Morgenstern utility
function
• How much does each player stand to gain or lose by playing the
game? What is the utility or payoff?
• What of not monetary games—games such as the theater game, the
Prisoners’ Dilemma, or the voting game?
• could simply attach numbers that correspond to the ranks—say, 4, 3, 2,
and 1—and call those numbers the payoffs.
• A higher payoff would signify a preferred alternative
• In the extensive form these utility numbers would get written at each
one of the nodes where the game terminates
• In the strategic form, the payoff numbers would get written in the cells
of the strategic matrix
What if the game’s outcome is not known for
sure?
• Examples
• In a battle of sexes, letting a coin toss determine which of two possible
strategies she will go
• If several firms are competing for the market share of a new product
and nobody knows for sure how the market will view that product
• Simple ranking of the outcomes will not work
Von Neumann and Morgenstern Contribution
• Asked the following question:
• Under what conditions can we treat the payoff to an uncertain outcome
as the average of the payoffs to the underlying certain outcomes?
• Expected utility: Preferences satisfy expected utility when the payoff
to an uncertain outcome is precisely the average payoff of the
underlying certain outcomes.
Representation of extensive games with payoffs
Prisoners Dilemma
Strategic Form Games
1. the list of players in the game
2. the set of strategies available to each player
3. the payoffs associated with any strategy combination (one strategy
per player)
Prisoners Dilemma
Calvin\Klein Confess Not Confess

Confess 0,0 7,-2

Not Confess -2,7 5,5


Battle of Sexes
Husband\Wife Football Opera

Football 3,1 0,0

Opera 0,0 1,3


Dominant Strategy
• Consider the Prisoners’ Dilemma.
• If Klein does not confess: the strategy confess gives Calvin a higher
payoff than not confess—7 rather than 5
• If Klein does confess: it also gives him a higher payoff—0 rather than
−2—if Klein does confess.
• No matter what Klein does, Calvin is always better off confessing
• Similar logic applies for Klein.
• Thus both players will end up confessing
Strongly Dominated Strategy
Weakly Dominated
• A strategy (weakly) dominates another strategy , say , if it does at
least as well as against every strategy of the other players, and
against some it does strictly better
for all
for some
We say is a dominated strategy. If weakly dominates every other
candidate strategy then then said to be weakly dominated strategy
Intuition
• Every strategy that is dominated is clearly not a dominant strategy
• So not confess in the Prisoners’ Dilemma is not a dominant strategy.
• In the Battle of the Sexes, football is not a dominant strategy because
it does not always yield a higher payoff than opera
Example of a strategy that is weakly but not strongly dominant

Top weakly-but not strongly-dominates bottom

Left Right

Top 7 5

Bottom 7 3
Dominant strategy solution
• A combination of strategies is said to be a dominant strategy
solution if each player’s strategy is a dominant strategy
• Example: Confess, Confess in Prisoners Dilemma, bidding truthfully
What is the dominant strategy?
Left Right

Top 7,3 5,3

Bottom 7,0 3,1


Find the dominant strategy
Battle of sexes
•Husband\Wife
Husband\Wife
•Football Football Opera

Football 3,1 0,0

Opera 0,0 1,3


Find the dominant strategy
Matching pennies

Head Tail

Head 1,-1 -1,1

tail -1,1 1,-1


No dominant strategy games
• Many games does not have a dominant strategy solution.
• In particular, even if a single player is without a dominant
strategy, there will be no dominant strategy solution to a game.
• Example, Battle of the Sexes, the matching pennies
• Undominated strategy: A strategy that is not dominated by any other
strategy.

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