Lecture 1 - Introduction 1. Introduction to Game Theory Basic Game Theory Examples Strategic...
-
date post
19-Dec-2015 -
Category
Documents
-
view
243 -
download
8
Transcript of Lecture 1 - Introduction 1. Introduction to Game Theory Basic Game Theory Examples Strategic...
![Page 1: Lecture 1 - Introduction 1. Introduction to Game Theory Basic Game Theory Examples Strategic Games More Game Theory Examples Equilibrium Mixed.](https://reader036.fdocuments.us/reader036/viewer/2022062304/56649d2e5503460f94a0613e/html5/thumbnails/1.jpg)
1
Computational Game Theory
Lecture 1 - Introduction
![Page 2: Lecture 1 - Introduction 1. Introduction to Game Theory Basic Game Theory Examples Strategic Games More Game Theory Examples Equilibrium Mixed.](https://reader036.fdocuments.us/reader036/viewer/2022062304/56649d2e5503460f94a0613e/html5/thumbnails/2.jpg)
2
Agenda Introduction to Game Theory Basic Game Theory Examples Strategic Games More Game Theory Examples Equilibrium Mixed Strategy
![Page 3: Lecture 1 - Introduction 1. Introduction to Game Theory Basic Game Theory Examples Strategic Games More Game Theory Examples Equilibrium Mixed.](https://reader036.fdocuments.us/reader036/viewer/2022062304/56649d2e5503460f94a0613e/html5/thumbnails/3.jpg)
3
The study of Game Theory in the context of Computer Science, in order to reason about problems from computability and algorithm design.
Computational Game Theory
![Page 4: Lecture 1 - Introduction 1. Introduction to Game Theory Basic Game Theory Examples Strategic Games More Game Theory Examples Equilibrium Mixed.](https://reader036.fdocuments.us/reader036/viewer/2022062304/56649d2e5503460f94a0613e/html5/thumbnails/4.jpg)
4
Artificial Intelligence◦ Single/multi agent environment ◦ Learning
Communications Networks◦ Many players (end-users, ISVs, Infrastructure
Providers)◦ Players wish to maximize their own benefit and
act accordingly◦ The trick is to design a system where it’s
beneficial for the player to follow the rules
CGT in Computer Science
![Page 5: Lecture 1 - Introduction 1. Introduction to Game Theory Basic Game Theory Examples Strategic Games More Game Theory Examples Equilibrium Mixed.](https://reader036.fdocuments.us/reader036/viewer/2022062304/56649d2e5503460f94a0613e/html5/thumbnails/5.jpg)
5
Theory◦ Algorithms design◦ Complexity◦ Quality of game states (Equilibrium states in
particular)
Industry◦ Sponsored search – design biddings to maximize
bidder’s benefit while ensuring good outcome for the owners
CGT in Computer Science
![Page 6: Lecture 1 - Introduction 1. Introduction to Game Theory Basic Game Theory Examples Strategic Games More Game Theory Examples Equilibrium Mixed.](https://reader036.fdocuments.us/reader036/viewer/2022062304/56649d2e5503460f94a0613e/html5/thumbnails/6.jpg)
6
Rational Player◦ Prioritizes possible actions according to utility or
cost◦ Strives to maximize utility or to minimize cost
Competitive Environment◦ More than one player at the same time
Game Theory analyzes how rational players behave in competitive
environments
Game Theory
![Page 7: Lecture 1 - Introduction 1. Introduction to Game Theory Basic Game Theory Examples Strategic Games More Game Theory Examples Equilibrium Mixed.](https://reader036.fdocuments.us/reader036/viewer/2022062304/56649d2e5503460f94a0613e/html5/thumbnails/7.jpg)
7
Agenda Introduction to Game Theory Basic Game Theory examples
![Page 8: Lecture 1 - Introduction 1. Introduction to Game Theory Basic Game Theory Examples Strategic Games More Game Theory Examples Equilibrium Mixed.](https://reader036.fdocuments.us/reader036/viewer/2022062304/56649d2e5503460f94a0613e/html5/thumbnails/8.jpg)
8
Two criminals committed a crime and they’re held in isolation
If they both confess they get 4 years each
If neither confesses they get 2 years each
If one confesses and the other doesn’t, the one that confessed gets 1 year and the other gets 5 years.
The Prisoner’s Dilema
![Page 9: Lecture 1 - Introduction 1. Introduction to Game Theory Basic Game Theory Examples Strategic Games More Game Theory Examples Equilibrium Mixed.](https://reader036.fdocuments.us/reader036/viewer/2022062304/56649d2e5503460f94a0613e/html5/thumbnails/9.jpg)
9
Matrix representation of the game:
The Prisoner’s Dilema
![Page 10: Lecture 1 - Introduction 1. Introduction to Game Theory Basic Game Theory Examples Strategic Games More Game Theory Examples Equilibrium Mixed.](https://reader036.fdocuments.us/reader036/viewer/2022062304/56649d2e5503460f94a0613e/html5/thumbnails/10.jpg)
10
Matrix representation of the game:
The Prisoner’s Dilema
Row Player
![Page 11: Lecture 1 - Introduction 1. Introduction to Game Theory Basic Game Theory Examples Strategic Games More Game Theory Examples Equilibrium Mixed.](https://reader036.fdocuments.us/reader036/viewer/2022062304/56649d2e5503460f94a0613e/html5/thumbnails/11.jpg)
11
Matrix representation of the game:
The Prisoner’s Dilema
Column Player
![Page 12: Lecture 1 - Introduction 1. Introduction to Game Theory Basic Game Theory Examples Strategic Games More Game Theory Examples Equilibrium Mixed.](https://reader036.fdocuments.us/reader036/viewer/2022062304/56649d2e5503460f94a0613e/html5/thumbnails/12.jpg)
12
Matrix representation of the game:
The Prisoner’s Dilema
For example: Column player confesses, row player doesn’t. Column player gets 1 year, row player gets 5 years
![Page 13: Lecture 1 - Introduction 1. Introduction to Game Theory Basic Game Theory Examples Strategic Games More Game Theory Examples Equilibrium Mixed.](https://reader036.fdocuments.us/reader036/viewer/2022062304/56649d2e5503460f94a0613e/html5/thumbnails/13.jpg)
13
Think about player i◦ If player 1-i confesses then:
If player i confesses he will get 4 years If player i doesn’t confess he will get 5 years
◦ If player 1-i doesn’t confess then: If player i confesses he will get 1 year If player i confesses he will get 2 years
What will player i do?
The Prisoner’s Dilema
![Page 14: Lecture 1 - Introduction 1. Introduction to Game Theory Basic Game Theory Examples Strategic Games More Game Theory Examples Equilibrium Mixed.](https://reader036.fdocuments.us/reader036/viewer/2022062304/56649d2e5503460f94a0613e/html5/thumbnails/14.jpg)
14
Think about player i◦ If player 1-i confesses then:
If player i confesses he will get 4 years If player i doesn’t confess he will get 5 years
◦ If player 1-i doesn’t confess then: If player i confesses he will get 1 year If player i confesses he will get 2 years
Confessing is the best action for player i
The Prisoner’s Dilema
![Page 15: Lecture 1 - Introduction 1. Introduction to Game Theory Basic Game Theory Examples Strategic Games More Game Theory Examples Equilibrium Mixed.](https://reader036.fdocuments.us/reader036/viewer/2022062304/56649d2e5503460f94a0613e/html5/thumbnails/15.jpg)
15
Game Theory predicts that both players will choose to confess
This is called an Equilibrium (to be defined later)
The Prisoner’s Dilema
![Page 16: Lecture 1 - Introduction 1. Introduction to Game Theory Basic Game Theory Examples Strategic Games More Game Theory Examples Equilibrium Mixed.](https://reader036.fdocuments.us/reader036/viewer/2022062304/56649d2e5503460f94a0613e/html5/thumbnails/16.jpg)
16
Internet Service Providers (ISP) often share their physical networks for free
In some cases an ISP can either choose to route traffic in its own network or via a partner network
ISP Routing
![Page 17: Lecture 1 - Introduction 1. Introduction to Game Theory Basic Game Theory Examples Strategic Games More Game Theory Examples Equilibrium Mixed.](https://reader036.fdocuments.us/reader036/viewer/2022062304/56649d2e5503460f94a0613e/html5/thumbnails/17.jpg)
17
ISPi needs to route traffic from si to ti
A and B are gateways between their physical networks
The cost of routing along each edge is 1
ISP Routing
A B
![Page 18: Lecture 1 - Introduction 1. Introduction to Game Theory Basic Game Theory Examples Strategic Games More Game Theory Examples Equilibrium Mixed.](https://reader036.fdocuments.us/reader036/viewer/2022062304/56649d2e5503460f94a0613e/html5/thumbnails/18.jpg)
18
For example: ISP1 routes via A◦Cost for ISP1: 1◦Cost for ISP2: 3
ISP Routing
A B
![Page 19: Lecture 1 - Introduction 1. Introduction to Game Theory Basic Game Theory Examples Strategic Games More Game Theory Examples Equilibrium Mixed.](https://reader036.fdocuments.us/reader036/viewer/2022062304/56649d2e5503460f94a0613e/html5/thumbnails/19.jpg)
19
Cost matrix for the game:
ISP Routing
A B
![Page 20: Lecture 1 - Introduction 1. Introduction to Game Theory Basic Game Theory Examples Strategic Games More Game Theory Examples Equilibrium Mixed.](https://reader036.fdocuments.us/reader036/viewer/2022062304/56649d2e5503460f94a0613e/html5/thumbnails/20.jpg)
20
Think about ISPi◦ If ISP1-i routes via A
If ISPi routes via A its cost would be 3+1=4 If ISPi routes via B its cost would be 3+2=5
◦ If ISP1-i routes via B If ISPi routes via A its cost
would be 1+1=2 If ISPi routes via B its cost
would be 1+2=3
ISP Routing
A B
![Page 21: Lecture 1 - Introduction 1. Introduction to Game Theory Basic Game Theory Examples Strategic Games More Game Theory Examples Equilibrium Mixed.](https://reader036.fdocuments.us/reader036/viewer/2022062304/56649d2e5503460f94a0613e/html5/thumbnails/21.jpg)
21
Think about ISPi◦ If ISP1-i routes via A
If ISPi routes via A its cost would be 3+1=4 If ISPi routes via B its cost would be 3+2=5
◦ If ISP1-i routes via B If ISPi routes via A its cost
would be 1+1=2 If ISPi routes via B its cost
would be 1+2=3
A is the best option for ISPi
ISP Routing
A B
![Page 22: Lecture 1 - Introduction 1. Introduction to Game Theory Basic Game Theory Examples Strategic Games More Game Theory Examples Equilibrium Mixed.](https://reader036.fdocuments.us/reader036/viewer/2022062304/56649d2e5503460f94a0613e/html5/thumbnails/22.jpg)
22
(A,A) is an Equilibrium
ISP Routing
A B
![Page 23: Lecture 1 - Introduction 1. Introduction to Game Theory Basic Game Theory Examples Strategic Games More Game Theory Examples Equilibrium Mixed.](https://reader036.fdocuments.us/reader036/viewer/2022062304/56649d2e5503460f94a0613e/html5/thumbnails/23.jpg)
23
Agenda Introduction to Game Theory Basic Game Theory examples
![Page 24: Lecture 1 - Introduction 1. Introduction to Game Theory Basic Game Theory Examples Strategic Games More Game Theory Examples Equilibrium Mixed.](https://reader036.fdocuments.us/reader036/viewer/2022062304/56649d2e5503460f94a0613e/html5/thumbnails/24.jpg)
24
The game consists of only one ‘turn’
All the players play simultaneously and are unaware of what the other players do
Players are selfish, wanting to maximize their own benefit
Strategic Games
![Page 25: Lecture 1 - Introduction 1. Introduction to Game Theory Basic Game Theory Examples Strategic Games More Game Theory Examples Equilibrium Mixed.](https://reader036.fdocuments.us/reader036/viewer/2022062304/56649d2e5503460f94a0613e/html5/thumbnails/25.jpg)
25
N = {1,…,n} players Player i has m possible actions Ai = {ai1,
…,aim}. Action == Strategy (wording) The space of all possible action vectors is A
= A1×…×An A joint action is the vector a∈A (the game
outcome – the action of each player) Player i has a utility function ui: A→ℛ or a
cost function ci: A→ℛ
Strategic Games – Formal Model
![Page 26: Lecture 1 - Introduction 1. Introduction to Game Theory Basic Game Theory Examples Strategic Games More Game Theory Examples Equilibrium Mixed.](https://reader036.fdocuments.us/reader036/viewer/2022062304/56649d2e5503460f94a0613e/html5/thumbnails/26.jpg)
26
A strategic game is the triplet:
Strategic Games – Formal Model
![Page 27: Lecture 1 - Introduction 1. Introduction to Game Theory Basic Game Theory Examples Strategic Games More Game Theory Examples Equilibrium Mixed.](https://reader036.fdocuments.us/reader036/viewer/2022062304/56649d2e5503460f94a0613e/html5/thumbnails/27.jpg)
27
A strategic game is the triplet:
Strategic Games – Formal Model
Players
![Page 28: Lecture 1 - Introduction 1. Introduction to Game Theory Basic Game Theory Examples Strategic Games More Game Theory Examples Equilibrium Mixed.](https://reader036.fdocuments.us/reader036/viewer/2022062304/56649d2e5503460f94a0613e/html5/thumbnails/28.jpg)
28
A strategic game is the triplet:
Strategic Games – Formal Model
Actions of each player
![Page 29: Lecture 1 - Introduction 1. Introduction to Game Theory Basic Game Theory Examples Strategic Games More Game Theory Examples Equilibrium Mixed.](https://reader036.fdocuments.us/reader036/viewer/2022062304/56649d2e5503460f94a0613e/html5/thumbnails/29.jpg)
29
A strategic game is the triplet:
Strategic Games – Formal Model
Utility of each player
![Page 30: Lecture 1 - Introduction 1. Introduction to Game Theory Basic Game Theory Examples Strategic Games More Game Theory Examples Equilibrium Mixed.](https://reader036.fdocuments.us/reader036/viewer/2022062304/56649d2e5503460f94a0613e/html5/thumbnails/30.jpg)
30
Describes the best action a player can choose
Action ai of player i is a Weak Dominant Strategy if:
Dominant Strategy
Action ai of player i is a Strong Dominant Strategy if:
![Page 31: Lecture 1 - Introduction 1. Introduction to Game Theory Basic Game Theory Examples Strategic Games More Game Theory Examples Equilibrium Mixed.](https://reader036.fdocuments.us/reader036/viewer/2022062304/56649d2e5503460f94a0613e/html5/thumbnails/31.jpg)
31
An outcome a of a game is pareto optimal if for every other outcome b, some player will lose by changing to b
Pareto Optimality
![Page 32: Lecture 1 - Introduction 1. Introduction to Game Theory Basic Game Theory Examples Strategic Games More Game Theory Examples Equilibrium Mixed.](https://reader036.fdocuments.us/reader036/viewer/2022062304/56649d2e5503460f94a0613e/html5/thumbnails/32.jpg)
32
Agenda Introduction to Game Theory Basic Game Theory examples
![Page 33: Lecture 1 - Introduction 1. Introduction to Game Theory Basic Game Theory Examples Strategic Games More Game Theory Examples Equilibrium Mixed.](https://reader036.fdocuments.us/reader036/viewer/2022062304/56649d2e5503460f94a0613e/html5/thumbnails/33.jpg)
33
N players live in a neighborhood. Each owns a dog.
Each player has a cost function:◦ The cost of picking up after your dog is 3◦ The cost incurred by not picking up after a dog is
1 A single player’s point of view:
◦ If k players choose “Leave” and n-k-1 players choose “Pick”: If I choose “Leave” my cost would be k+1 If I choose “Pick” my cost would be k+3
Picking up after your dog
![Page 34: Lecture 1 - Introduction 1. Introduction to Game Theory Basic Game Theory Examples Strategic Games More Game Theory Examples Equilibrium Mixed.](https://reader036.fdocuments.us/reader036/viewer/2022062304/56649d2e5503460f94a0613e/html5/thumbnails/34.jpg)
34
“Leave” is a dominant action for a player Note:
◦ If all players choose “Pick” the cost would be 3 for each
◦ The dominant action can be changed by changing the rules: assume the authorities would fine me every time I choose “Leave”
Picking up after your dog
![Page 35: Lecture 1 - Introduction 1. Introduction to Game Theory Basic Game Theory Examples Strategic Games More Game Theory Examples Equilibrium Mixed.](https://reader036.fdocuments.us/reader036/viewer/2022062304/56649d2e5503460f94a0613e/html5/thumbnails/35.jpg)
35
Assume there’s a shared resource (network bandwidth) and N players.
Each player requests a proportion of the resource, by choosing Xi from [0,1].
If the sum of all Xi > 1 then the resource collapses (everyone gets 0, all ui = 0)
Otherwise, each gets according to their request: uj=(1-ΣXi)Xj
Tragedy of the commons
![Page 36: Lecture 1 - Introduction 1. Introduction to Game Theory Basic Game Theory Examples Strategic Games More Game Theory Examples Equilibrium Mixed.](https://reader036.fdocuments.us/reader036/viewer/2022062304/56649d2e5503460f94a0613e/html5/thumbnails/36.jpg)
36
A single player’s point of view:◦ Define◦ Player i will try to maximize f which is:
◦ Taking the derivative of f yields:
◦ In order to find the maximum of f we require:
Tragedy of the commons
![Page 37: Lecture 1 - Introduction 1. Introduction to Game Theory Basic Game Theory Examples Strategic Games More Game Theory Examples Equilibrium Mixed.](https://reader036.fdocuments.us/reader036/viewer/2022062304/56649d2e5503460f94a0613e/html5/thumbnails/37.jpg)
37
The dominant action for player i is:
The utility for player i according to Xi is:
(see scribe notes for a complete proof)
Tragedy of the commons
![Page 38: Lecture 1 - Introduction 1. Introduction to Game Theory Basic Game Theory Examples Strategic Games More Game Theory Examples Equilibrium Mixed.](https://reader036.fdocuments.us/reader036/viewer/2022062304/56649d2e5503460f94a0613e/html5/thumbnails/38.jpg)
38
Even though we calculated a dominant action for each player, it is not Pareto Optimal:
◦ If each player choose:
◦ We will get:
Tragedy of the commons
![Page 39: Lecture 1 - Introduction 1. Introduction to Game Theory Basic Game Theory Examples Strategic Games More Game Theory Examples Equilibrium Mixed.](https://reader036.fdocuments.us/reader036/viewer/2022062304/56649d2e5503460f94a0613e/html5/thumbnails/39.jpg)
39
Agenda Introduction to Game Theory Basic Game Theory examples
![Page 40: Lecture 1 - Introduction 1. Introduction to Game Theory Basic Game Theory Examples Strategic Games More Game Theory Examples Equilibrium Mixed.](https://reader036.fdocuments.us/reader036/viewer/2022062304/56649d2e5503460f94a0613e/html5/thumbnails/40.jpg)
40
A Nash Equilibrium is an outcome of the game in which no player can improve its utility alone:
Alternative definition: every player’s action is a best response:
Nash Equilibrium
![Page 41: Lecture 1 - Introduction 1. Introduction to Game Theory Basic Game Theory Examples Strategic Games More Game Theory Examples Equilibrium Mixed.](https://reader036.fdocuments.us/reader036/viewer/2022062304/56649d2e5503460f94a0613e/html5/thumbnails/41.jpg)
41
2 players (of different gender) should decide on which even to attend (Sports or Opera)
The man prefers going to the Sports event The woman prefers going to the Opera Each player has a utility:
◦ If I attend my preferred event I get 2 points, 1 otherwise.
◦ If we both go to the same event I get 2 points, 0 otherwise.
Battle of the Sexes
![Page 42: Lecture 1 - Introduction 1. Introduction to Game Theory Basic Game Theory Examples Strategic Games More Game Theory Examples Equilibrium Mixed.](https://reader036.fdocuments.us/reader036/viewer/2022062304/56649d2e5503460f94a0613e/html5/thumbnails/42.jpg)
42
The payoff matrix:
Battle of the Sexes
![Page 43: Lecture 1 - Introduction 1. Introduction to Game Theory Basic Game Theory Examples Strategic Games More Game Theory Examples Equilibrium Mixed.](https://reader036.fdocuments.us/reader036/viewer/2022062304/56649d2e5503460f94a0613e/html5/thumbnails/43.jpg)
43
The payoff matrix:
Battle of the Sexes
Row player has no incentive to
move up
![Page 44: Lecture 1 - Introduction 1. Introduction to Game Theory Basic Game Theory Examples Strategic Games More Game Theory Examples Equilibrium Mixed.](https://reader036.fdocuments.us/reader036/viewer/2022062304/56649d2e5503460f94a0613e/html5/thumbnails/44.jpg)
44
The payoff matrix:
Battle of the Sexes
Column player has no
incentive to move left
![Page 45: Lecture 1 - Introduction 1. Introduction to Game Theory Basic Game Theory Examples Strategic Games More Game Theory Examples Equilibrium Mixed.](https://reader036.fdocuments.us/reader036/viewer/2022062304/56649d2e5503460f94a0613e/html5/thumbnails/45.jpg)
45
The payoff matrix:
Battle of the Sexes
So this is an Equilibrium state
![Page 46: Lecture 1 - Introduction 1. Introduction to Game Theory Basic Game Theory Examples Strategic Games More Game Theory Examples Equilibrium Mixed.](https://reader036.fdocuments.us/reader036/viewer/2022062304/56649d2e5503460f94a0613e/html5/thumbnails/46.jpg)
46
The payoff matrix:
Battle of the Sexes
Same thing here
![Page 47: Lecture 1 - Introduction 1. Introduction to Game Theory Basic Game Theory Examples Strategic Games More Game Theory Examples Equilibrium Mixed.](https://reader036.fdocuments.us/reader036/viewer/2022062304/56649d2e5503460f94a0613e/html5/thumbnails/47.jpg)
47
2 players need to send a packet from point O to the network.
They can send it via A (costs 1) or B (costs 2)
Routing Game
![Page 48: Lecture 1 - Introduction 1. Introduction to Game Theory Basic Game Theory Examples Strategic Games More Game Theory Examples Equilibrium Mixed.](https://reader036.fdocuments.us/reader036/viewer/2022062304/56649d2e5503460f94a0613e/html5/thumbnails/48.jpg)
48
The cost matrix:
Routing Game
![Page 49: Lecture 1 - Introduction 1. Introduction to Game Theory Basic Game Theory Examples Strategic Games More Game Theory Examples Equilibrium Mixed.](https://reader036.fdocuments.us/reader036/viewer/2022062304/56649d2e5503460f94a0613e/html5/thumbnails/49.jpg)
49
The cost matrix:
Routing Game
Equilibrium states
![Page 50: Lecture 1 - Introduction 1. Introduction to Game Theory Basic Game Theory Examples Strategic Games More Game Theory Examples Equilibrium Mixed.](https://reader036.fdocuments.us/reader036/viewer/2022062304/56649d2e5503460f94a0613e/html5/thumbnails/50.jpg)
50
Agenda Introduction to Game Theory Basic Game Theory examples
![Page 51: Lecture 1 - Introduction 1. Introduction to Game Theory Basic Game Theory Examples Strategic Games More Game Theory Examples Equilibrium Mixed.](https://reader036.fdocuments.us/reader036/viewer/2022062304/56649d2e5503460f94a0613e/html5/thumbnails/51.jpg)
51
2 players, each chooses Head or Tail Row player wins if they match the column
player wins if they don’t Utility matrix:
Matching Pennies
![Page 52: Lecture 1 - Introduction 1. Introduction to Game Theory Basic Game Theory Examples Strategic Games More Game Theory Examples Equilibrium Mixed.](https://reader036.fdocuments.us/reader036/viewer/2022062304/56649d2e5503460f94a0613e/html5/thumbnails/52.jpg)
52
2 players, each chooses Head or Tail Row player wins if they match the column
player wins if they don’t Utility matrix:
Matching Pennies
Row player is fine, but Column player wants to move left
![Page 53: Lecture 1 - Introduction 1. Introduction to Game Theory Basic Game Theory Examples Strategic Games More Game Theory Examples Equilibrium Mixed.](https://reader036.fdocuments.us/reader036/viewer/2022062304/56649d2e5503460f94a0613e/html5/thumbnails/53.jpg)
53
2 players, each chooses Head or Tail Row player wins if they match the column
player wins if they don’t Utility matrix:
Matching Pennies
Column player is fine, but Row player wants to move up
![Page 54: Lecture 1 - Introduction 1. Introduction to Game Theory Basic Game Theory Examples Strategic Games More Game Theory Examples Equilibrium Mixed.](https://reader036.fdocuments.us/reader036/viewer/2022062304/56649d2e5503460f94a0613e/html5/thumbnails/54.jpg)
54
2 players, each chooses Head or Tail Row player wins if they match the column
player wins if they don’t Utility matrix:
Matching Pennies
Row player is fine, but Column player
wants to move right
![Page 55: Lecture 1 - Introduction 1. Introduction to Game Theory Basic Game Theory Examples Strategic Games More Game Theory Examples Equilibrium Mixed.](https://reader036.fdocuments.us/reader036/viewer/2022062304/56649d2e5503460f94a0613e/html5/thumbnails/55.jpg)
55
2 players, each chooses Head or Tail Row player wins if they match the column
player wins if they don’t Utility matrix:
Matching Pennies
Column player is fine, but Row player wants
to move down
![Page 56: Lecture 1 - Introduction 1. Introduction to Game Theory Basic Game Theory Examples Strategic Games More Game Theory Examples Equilibrium Mixed.](https://reader036.fdocuments.us/reader036/viewer/2022062304/56649d2e5503460f94a0613e/html5/thumbnails/56.jpg)
56
2 players, each chooses Head or Tail Row player wins if they match the column
player wins if they don’t Utility matrix:
No equilibrium state!
Matching Pennies
![Page 57: Lecture 1 - Introduction 1. Introduction to Game Theory Basic Game Theory Examples Strategic Games More Game Theory Examples Equilibrium Mixed.](https://reader036.fdocuments.us/reader036/viewer/2022062304/56649d2e5503460f94a0613e/html5/thumbnails/57.jpg)
57
Players do not choose a pure strategy (one specific strategy)
Players choose a distribution over their possible pure strategies
For example: with probability p I choose Head, and with probability 1-p I choose Tail
Mixed Strategy
![Page 58: Lecture 1 - Introduction 1. Introduction to Game Theory Basic Game Theory Examples Strategic Games More Game Theory Examples Equilibrium Mixed.](https://reader036.fdocuments.us/reader036/viewer/2022062304/56649d2e5503460f94a0613e/html5/thumbnails/58.jpg)
58
Player 1 chooses Head with probability p and Tail with probability 1-p
Player 2 chooses Head with probability q and Tail with probability 1-q
Player i wants to maximize its expected utility
What’s the best response for player 1?◦ If I choose Head then with probability q I get 1and
with probability 1-q I get -1. u = 2q-1.◦ If I choose Tail then with probability q I get -1 and
with probability 1-q I get 1. u = 1-2q.
Matching Pennies
![Page 59: Lecture 1 - Introduction 1. Introduction to Game Theory Basic Game Theory Examples Strategic Games More Game Theory Examples Equilibrium Mixed.](https://reader036.fdocuments.us/reader036/viewer/2022062304/56649d2e5503460f94a0613e/html5/thumbnails/59.jpg)
59
So player 1 will choose Head if 2q-1 > 1-2q which results in q > ½
If q < ½ player 1 will choose Tail If q = ½, the player is indifferent The same holds for player 2 Equilibrium is reached if both players
choose the mixed strategy (½, ½)
Matching Pennies
![Page 60: Lecture 1 - Introduction 1. Introduction to Game Theory Basic Game Theory Examples Strategic Games More Game Theory Examples Equilibrium Mixed.](https://reader036.fdocuments.us/reader036/viewer/2022062304/56649d2e5503460f94a0613e/html5/thumbnails/60.jpg)
60
Each player selects where is the set of all possible distributions over Ai
An outcome of the game is the Joint Mixed Strategy
An outcome of the game is a Mixed Nash Equilibrium if for every player
Mixed Strategy
![Page 61: Lecture 1 - Introduction 1. Introduction to Game Theory Basic Game Theory Examples Strategic Games More Game Theory Examples Equilibrium Mixed.](https://reader036.fdocuments.us/reader036/viewer/2022062304/56649d2e5503460f94a0613e/html5/thumbnails/61.jpg)
61
2nd definition of Mixed Nash Equilibrium:
Definition:
Definition:
3rd definition of Mixed Nash Equilibrium:
Mixed Strategy
![Page 62: Lecture 1 - Introduction 1. Introduction to Game Theory Basic Game Theory Examples Strategic Games More Game Theory Examples Equilibrium Mixed.](https://reader036.fdocuments.us/reader036/viewer/2022062304/56649d2e5503460f94a0613e/html5/thumbnails/62.jpg)
62
No pure strategy Nash Equilibrium, only Mixed Nash Equilibrium, for mixed strategy (1/3, 1/3, 1/3) .
Rock Paper Scissors
![Page 63: Lecture 1 - Introduction 1. Introduction to Game Theory Basic Game Theory Examples Strategic Games More Game Theory Examples Equilibrium Mixed.](https://reader036.fdocuments.us/reader036/viewer/2022062304/56649d2e5503460f94a0613e/html5/thumbnails/63.jpg)
63
N ice cream vendors are spread on the beach
Assume that the beach is the line [0,1] Each vendor chooses a location Xi, which
affects its utility (sales volume). The utility for player i :
X0 = 0, Xn+1 = 1
Location Game
![Page 64: Lecture 1 - Introduction 1. Introduction to Game Theory Basic Game Theory Examples Strategic Games More Game Theory Examples Equilibrium Mixed.](https://reader036.fdocuments.us/reader036/viewer/2022062304/56649d2e5503460f94a0613e/html5/thumbnails/64.jpg)
64
For N=2 we have a pure Nash Equilibrium:
No player wants to move since it will lose space
For N=3 no pure Nash Equilibrium:
The player in the middle always wants to move to improve its utility
Location Game
0 11/2
0 11/2
![Page 65: Lecture 1 - Introduction 1. Introduction to Game Theory Basic Game Theory Examples Strategic Games More Game Theory Examples Equilibrium Mixed.](https://reader036.fdocuments.us/reader036/viewer/2022062304/56649d2e5503460f94a0613e/html5/thumbnails/65.jpg)
65
If instead of a line we will assume a circle, we will always have a pure Nash Equilibrium where every player is evenly distanced from each other:
Location Game
![Page 66: Lecture 1 - Introduction 1. Introduction to Game Theory Basic Game Theory Examples Strategic Games More Game Theory Examples Equilibrium Mixed.](https://reader036.fdocuments.us/reader036/viewer/2022062304/56649d2e5503460f94a0613e/html5/thumbnails/66.jpg)
66
N companies are producing the same product
Company I needs to choose its production volume, Xi>=0
The price is determined based on the overall production volume,
Each company has a production cost: The utility of company i is:
Cournot Competition
![Page 67: Lecture 1 - Introduction 1. Introduction to Game Theory Basic Game Theory Examples Strategic Games More Game Theory Examples Equilibrium Mixed.](https://reader036.fdocuments.us/reader036/viewer/2022062304/56649d2e5503460f94a0613e/html5/thumbnails/67.jpg)
67
Case 1: Linear price, no production cost
◦ Company i’s utility:
◦ Pure Nash Equilibrium is reached at:
Cournot Competition
![Page 68: Lecture 1 - Introduction 1. Introduction to Game Theory Basic Game Theory Examples Strategic Games More Game Theory Examples Equilibrium Mixed.](https://reader036.fdocuments.us/reader036/viewer/2022062304/56649d2e5503460f94a0613e/html5/thumbnails/68.jpg)
68
Case 2: Harmonic price, no production cost
◦ Company i’s utility:
◦ Companies have incentive to produce as much as they can – no pure or mixed Nash Equilibrium
Cournot Competition
![Page 69: Lecture 1 - Introduction 1. Introduction to Game Theory Basic Game Theory Examples Strategic Games More Game Theory Examples Equilibrium Mixed.](https://reader036.fdocuments.us/reader036/viewer/2022062304/56649d2e5503460f94a0613e/html5/thumbnails/69.jpg)
69
N players wants to buy a single item which is on sale
Each player has a valuation for the product, vi
Assume WLOG that v1>=v2>=… Each player submits its bid, bi, all players
submit simultaneously.
Auction
![Page 70: Lecture 1 - Introduction 1. Introduction to Game Theory Basic Game Theory Examples Strategic Games More Game Theory Examples Equilibrium Mixed.](https://reader036.fdocuments.us/reader036/viewer/2022062304/56649d2e5503460f94a0613e/html5/thumbnails/70.jpg)
70
Case 1: First price auction◦ The player with the highest bid wins◦ The price equals to the bid◦ 1st Equilibrium is:
The first player needs to know the valuation of the second player – not practical
◦ 2nd Equilibrium is:
Auction
![Page 71: Lecture 1 - Introduction 1. Introduction to Game Theory Basic Game Theory Examples Strategic Games More Game Theory Examples Equilibrium Mixed.](https://reader036.fdocuments.us/reader036/viewer/2022062304/56649d2e5503460f94a0613e/html5/thumbnails/71.jpg)
71
Case 2: Second price auction◦ The player with the highest bid wins◦ The price equals to the second highest bid
No incentive to bid higher than one’s valuation - a player’s utility when it bids its valuation is at least as high than when it bids any other value
This mechanism encourages players to bid truthfully
Auction