I
Ch How think about
Strategic games
1 .
Decision
Vs
Game :
Strategic game : interactions btw
players
.
mutually aware
Decision : situations where each person can choose
without concern
for reaction or
response
from others
.
Rule to decide
If something is
game
a or not : Unless
there are you more
to what others do , (or what each
players each of whom
responds
thinks others
do) it is not a
, game .
might
classificationofGames
1 .
Sequential or Simultaneous :
-
moves in chess are
sequential .
Simultaneous
games
:
Players choose based on what
they
think the other
players might
the
opportunity to observe
have
do and don't the
other and then decide
actions
of
.
and
Sequential games :
Players move in
observe the
sequence
actions
can previous
taken
by the players .
.
2 Are
player's Interests in Total
Conflict (Zero Sum Game
or is there some
commonality
>
-
If the Players's
interest are in
complete conflict,
other
person's loss
one
person's gain is ,
then
called Lev Sum
these are
[Link] sometimes
Constant-sum games as well .
>
-
Not all
games
are zero sum
For Example Trade
.
or economic
activity benefit's everyone so
they
,
not
are
zero sum
games
.Venture
for example , Joint
firms btw
combine can
firms with
diffet skills and generate more
what firms could
profit than
achieve &
individually
.
3 Is the
game played Repeatedl y ? and
once or
changing
with the same or
opponents ?
One-shot
games typically about players don't know
>
- :
mech others in
such
games .
-
Repeated games Games : with
ongoing relationships
have build
an
opportunity to
a
reputation and
find
out more about
the
opponent
.
Do players have
full or Equal information ?
Uncertainl y
could be
There 2
types of in a
.
game
① External
be
certainity for example player
:
uncertain about enternal
,
might circum
stances such as the weather or lets
sayto
,
-
the
quality of a
product that he wants
buy .
Uncertainty.
Strategic
M
the
player may be
uncertain about what moves his
opponent
has made past
his making
in the or is
at the
same time he makes oven moves
,
we call this strategic uncertainly .
If a
game
has neither external nor
strategic
uncertaindig ,
we call such a
game
as
game
with
perfect information
, otherwise
,
the
game
has
imperfect information .
knows than
players
more another
·
If one
called situations
players then it is
of incomplete
or
Asymmetric information .
In such situations want to release
, you your
information selectively
.
You want to reveal
the
good information (that works to
your
and hide the bad
advantage) information
works to
(that your disadvantage
>
-
More
informed
side (players) will try to
side and
signal the other use
strategies
and this is called
signalling
.
for example , A
company
who is
looking
to his candidates .
Companies
don't know what kind of cadidates are
Candidates know their
type
.
there .
They try
to
signal that
they are more
qualified for the Sob
by more education
,
degrees
(Signalling by
,
corres etc
.
the Candidates
.
take actions
· The less
informed players an
aedibly
or create seluations that
reveals
side
.
the
information of more
informed
called
Such strategies are
screening and
called
screening
methods
the
they
use are
Devices
Are the rules
of Game fixed Manipulable?
.
5 the or
· Rules
ofchess, cardgames or
sports are
given
must
and each
player follow them .
Business, Politics , and
· In
Games of
make their
Ordinary
rule
life , players can own
lesser entent
greater
to a or .
6 .
Are
agreements
to Co-operate Enforcable ?
mutually
allowed to discuss and
If playe are
decide what should be chosen
choose to do the after
players
and same even
: e .
, games in which joint-action agreement is
enforceable is called
Cooperative Games .
Games where even
after discussing ,
such
joint action
-
agreement
is not
enforceable
and individual
participants must be allowed
to act in their over interests are called
Non-Cooperative Games .
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Strategy :
Strategy in game theory refers to the complete plan of action a player will follow in a game,
accounting for all possible scenarios and choices they might face. It involves deciding in
advance what to do in every possible contingency, making it a thorough and well-defined plan of
behavior in the game.
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ss
Basic Understanding of Strategy:
● Strategies are the choices available to players in a game.
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● In simultaneous games (where moves are made at the same time), a strategy
corresponds to the single action chosen for that one occasion.
● iC
In sequential games (where moves occur one after another), strategies become more
complex as players respond to previous actions. This involves creating a complete plan
of action for every possible scenario.
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Completeness of Strategy:
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● A complete strategy specifies actions for every contingency, ensuring the player’s moves
are predetermined for any situation.
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● A simple test for completeness: If someone else could play the game on your behalf
based on your written instructions without needing further guidance, then your strategy is
complete.
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Game Theory’s Usage of Strategy:
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● Game theory uses "strategy" to mean a complete plan of action rather than
distinguishing between strategies (long-term plans) and tactics (short-term adjustments),
which is common in other contexts.
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● A strategy in game theory applies to all situations in a game, whether it involves multiple
steps or just a single move.
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Payoffs:
Payoff in game theory refers to the numerical value associated with the outcome of a game for
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a player, representing the player's satisfaction, utility, or benefit derived from that outcome. It
quantifies a player’s gain or loss based on the combination of strategies chosen by all players.
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What Payoffs Represent:
● Payoffs are not always about "winning" in the conventional sense. They can include
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factors like the margin of victory, the size of a prize, or even secondary benefits, such
as cooperative gains.
●
iC
Payoffs reflect a player’s objectives, which may involve shared interests or conflicting
goals.
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Games Aren’t Always Zero-Sum:
● Most strategic games are not purely zero-sum (win-lose scenarios). They often involve
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mixed motives, where both cooperation and competition coexist.
● Example: Players may compare the gains from cooperating versus cheating.
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Numerical Representation:
● Payoffs are represented numerically on a scale, allowing comparison of all logically
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possible outcomes of a game.
● Higher numerical payoffs are better in a player’s ranking system.
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● Numerical scales can represent various real-world metrics, such as profits for firms,
ratings for TV networks, or other measurable outcomes.
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Expected Payoffs:
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● When outcomes are uncertain, the payoff is calculated as the expected value, which is
the probabilistic average of all possible outcomes.
● Formula for expected payoff:
Expected Payoff=∑(Probability of Outcome×Payoff of Outcome)
● Example: If a player has a 75% chance of getting nothing (payoff = 0) and a 25% chance
of getting $100 (payoff = 100),
● the expected payoff is: (0.75×0)+(0.25×100) = 25(0.75×0)+(0.25×100)=25
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Rationality :
Rationality in game theory refers to the assumption that players are perfect calculators and
flawless followers of strategies that best serve their interests. It implies that each player has
consistent preferences and the ability to calculate and follow the optimal strategy to achieve the
highest payoff.
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Goal of Rational Players:
ss
● The aim of each player is to maximize their payoff by calculating and pursuing the best
strategy that serves their interests.
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● Rationality focuses on the player’s ability to act in their best interest, irrespective of how
other players’ actions might interfere.
Components of Rational Behavior:
iC
● Complete knowledge of interests: A rational player must know what they value or
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prioritize in the game.
● Flawless calculation: They must be able to compute the best strategy to maximize their
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payoff.
What Rationality Does Not Imply:
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● It does not mean players are selfish; a player might value the well-being of others and
include it in their payoff rankings.
● Rationality does not equate to short-term thinking. It includes consideration of long-term
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consequences and strategic roles.
● Being rational does not mean sharing the same values or moral standards as others. It
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simply means following one’s own consistent value system.
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Po
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Common knowledge of rules :
Common knowledge of rules in game theory means that all players understand and recognize
the rules of the game, and this understanding is shared among them at a fundamental level. It
extends beyond just individual awareness to ensure that everyone knows that others are aware
of the rules as well.
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Basic Assumption:
ss
● For a game to be analyzed, it is assumed that all players are aware of and agree on the
rules governing the game.
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Components of Game Rules:
●
●
iC
The list of players involved.
The strategies available to each player.
● The payoffs for all possible outcomes.
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● The assumption that each player acts as a rational maximizer of their payoff.
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Challenges in Strategic Interactions:
● Real-world games often involve asymmetric information, where players may not know all
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the options, value systems, or intentions of others.
Understanding Common Knowledge:
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● Mutual awareness: For something to be common knowledge, all players must know it,
know that others know it, and know that others know they know it, continuing indefinitely.
na
( Anyone remember the Show - FRIENDS reference )
● Infinite regress: While this chain theoretically goes on forever, practical applications
simplify it to a shared understanding at a basic level.
o
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Examples and Implications:
● In strategic interactions, players must account for their knowledge of the rules and their
assumptions about others’ understanding.
● Misunderstandings about common knowledge can lead to errors or missed opportunities
in strategy.
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Equilibrium
Equilibrium in game theory refers to a state where all players are using strategies that are the
best response to the strategies of the other players. No player has an incentive to unilaterally
change their strategy because doing so would not result in a better payoff.
Interaction of Strategies:
es
● Equilibrium describes the outcome of rational players’ strategies interacting.
● Each player's strategy is optimal given the strategies chosen by others.
ss
Misconceptions about Equilibrium:
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● Equilibrium does not mean nothing changes. In sequential-move games, strategies
continuously adapt as players respond to one another.
● iC
Equilibrium does not guarantee the "best" or most desirable outcome. For example, in
the Prisoner’s Dilemma, equilibrium leads to a suboptimal result for all players.
Use of the Concept :
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● Equilibrium serves as a descriptive and organizing framework for analyzing games.
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● It is not a flawless tool but can be modified or augmented to address its limitations, such
as incorporating non-rational behaviors or incomplete information.
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Challenges in Finding Equilibrium:
● Defining equilibrium mathematically is straightforward, but solving for equilibrium in a
game can be challenging.
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● Simple games with few players and strategies are solvable manually, while complex
games often require computational tools.
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Importance of Understanding Concepts:
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● Solving simple games manually helps build a foundational understanding of
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game-theoretic concepts.
● This knowledge is crucial for effectively using computational tools to analyze more
complex games.
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