ECON 221 - Introduction to Strategic Thinking

Simultaneous-Move Games I

Markus von Wartburg

The University of British Columbia

Outline

1 Simultaneous-Move Games I
Strategic / Normal Form
Pure versus Mixed Strategies
Prisoner’s Dilemma
Dominant Strategies
Dominance Solvability (Iterated Elimination of Dominated Strategies)
Best-Response Analysis
Rationalizability
Nash Equilibrium
Extension (More Players)
Simultaneous-Move Game

Simultaneous-Move Game
In simultaneous-move games, players have to make strategy choices simultane-
ously, without knowing the strategies that have been chosen by other player(s).

1 Student studies for the exam, instructor writes questions.

2 Rock-Paper-Scissors

3 Soccer penalty shoot-out

Although there is no information what other players actually choose, the strategic
choices available to each player are common knowledge.

Players must think not only about their own best strategic choice, but also the best
strategic choice of other players.
Normal / Strategic Form

Simultaneous-move games are represented in the Normal / Strategic Form, a

game matrix relating players strategic choices to their payoffs.

Column Player
(2nd payoff)
Strategy C1 Strategy C2

Strategy R1 a ,b c ,d
Row Player
(1st payoff)
Strategy R2 e ,f g ,h
Pure versus Mixed Strategies

Pure Strategy
A player pursues a pure strategy if she always chooses the same strategic action out
of all the action choices available.

- Always refuse to negotiate with kidnappers.

Mixed Strategy
A player pursues a mixed strategy if she randomizes in some manner among the strate-
gic action choices available to her.

- Sometimes pitch a curveball, sometimes a slider ("mix it up"and "keep them guessing").

For the moment, we will only look at pure strategies.

Butch Cassidy and the Sundance Kid

In the classic movie Butch Cassidy and the Sundance Kid (1969), two criminals get
caught suspected of committing a train robbery. They are kept and interrogated in
separate cells. The Cops do not have enough evidence to prove robbery, but they have
enough to nail them on weapons charges.

1 If they both confess, they get sentenced to jail for 5 years for robbery.

2 If neither confesses, they get sentenced to jail for 2 years on weapons charges.

3 If only of them confesses, the rat gets lenient treatment of 1 year in jail, the other gets 10
years. Sundance Kid
(Robert Redford)
Confess Deny

Confess -5 , -5 -1 , -10
Butch Cassidy
(Paul Newman)
Deny -10 , -1 -2 , -2
Dominant Strategies

(Strictly) Dominant Strategy

A (strictly) dominant strategy is a strategy which yields a higher payoff than all other
strategies for every possible strategy choices of the other players.

A dominant strategy is the best choice regardless of what the player thinks her opponent might do.

(Strictly) Dominated Strategy

A (strictly) dominated strategy is a strategy which yields a lower payoff than some
other strategy irrespective of the other player’s strategy choices of the other players.

(Strict) Dominance: Payoffs are strictly greater.

Weak Dominance: Payoffs are greater (at least one) or equal.

If you have a dominant strategy, use it!

Prisoner’s Dilemma

Sundance Kid
(Robert Redford)
Confess Deny

Confess -5 , -5 -1 , -10
Butch Cassidy
(Paul Newman)
Deny -10 , -1 -2 , -2

Confess is a dominant strategy for both criminals. Their payoffs are (−5, −5).

Both could be better off by choosing to deny which would result in payoffs
(−2, −2).
Stampede

Seinfeld (The Fire): During an accidental fire at a child’s birthday party,

George ran across the house, pushing and knocking everyone in his path
(including an elderly woman with her walker, a clown, and several children),
screaming “Fire!” as he ran to the door.

When a fire breaks out in a building, people often suffer injuries/death from
trampling rather than the smoke or fire.
Player 2
Rush Walk

Rush -5 , -5 0 , -8
Player 1
Walk -8 , 0 -1 , -1

A moderately dangerous physical situation turns fatal due to the human response,
which nevertheless, is rational from a self-preservation perspective.

George is only using his dominant strategy!

Examples of Prisoner’s Dilemma

Individually rational choices lead to a bad outcome for the group.

Pollution, deforestation, depletion of fisheries and global warming.

Tariffs and protection in international trade (strategic trade).

(Nuclear) arms race.

Steroid and drug use among athletes.

Solutions

1 External Regulation (government, laws, treaties).

2 Internal Regulation (ethics, norms, principles).

Iterated Elimination of Dominated Strategies I

In the Prisoner’s Dilemma, eliminating dominated strategies resulted in a unique outcome.

Dominance Solvability
A game is dominance solvable if successive elimination of dominated strategies results
in a unique outcome.

Player 2
Left Center Right

Top 2 ,3 0 ,2 0 ,1

Player 1 Middle 3 ,0 3 ,1 1 ,2

Bottom 4 ,0 2 ,2 0 ,1

Middle dominates Top for Player 1.

Iterated Elimination of Dominated Strategies II

Player 2
Left Center Right

Top 2 ,3 0 ,2 0 ,1

Player 1 Middle 3 ,0 3 ,1 1 ,2

Bottom 4 ,0 2 ,2 0 ,1

Right dominates Left for Player 2.

Player 2
Left Center Right

Top 2 ,3 0 ,2 0 ,1

Player 1 Middle 3 ,0 3 ,1 1 ,2

Bottom 4 ,0 2 ,2 0 ,1

Middle dominates Bottom for Player 1.

Iterated Elimination of Dominated Strategies III

Player 2
Left Center Right

Top 2 ,3 0 ,2 0 ,1

Player 1 Middle 3 ,0 3 ,1 1 ,2

Bottom 4 ,0 2 ,2 0 ,1

Right dominates Center for Player 2.

Player 2
Left Center Right

Top 2 ,3 0 ,2 0 ,1

Player 1 Middle 3 ,0 3 ,1 1 ,2

Bottom 4 ,0 2 ,2 0 ,1

The unique outcome of this game is (Middle, Right).

Iterated Elimination of Strictly Dominated Strategies

Iterated Elimination of Stritly Dominated Strategies

The residual game obtained from iteratively eliminating strictly dominated strategies
does not depend on the order of elimination.

Eliminating strategies for other players can never cause a strictly dominated strategy for
Player i to cease being strictly dominated.

Player 2
1 Eliminate Middle (strictly dominated by Bottom) Left Right

2 Eliminate Right (strictly dominated by Left) Top 5 ,1 1 ,0

3 Eliminate Bottom (strictly dominated by Top) Player 1 Middle 2 ,3 2 ,0

Bottom 4 ,2 3 ,1
1 Eliminate Right (strictly dominated by Left)

2 Eliminate Middle and Bottom (strictly dominated by Top)

Iterated Elimination of Weakly Dominated Strategies

Iterated Elimination of Weakly Dominated Strategies

The residual game obtained from iteratively eliminating weakly dominated strategies
can depend on the order of elimination.

Weakly dominated strategies can cease to be weakly dominated based on the order of
elimination.

Player 2
1 Eliminate Middle (strictly dominated by Top) Left Right

2 Eliminate Left (weakly dominated by Right) Top 3 ,2 2 ,2

Player 1 Middle 1 ,1 0 ,0
1 Eliminate Bottom (strictly dominated by Top)

2 Bottom 0 ,0 1 ,1
Eliminate Right (weakly dominated by Left)

1 Eliminate both Middle and Bottom (strictly dominated by Top)

2 No strategy of Player 2 is weakly dominated.

Best-Response Analysis

Best Response
Player A’s best-response to player B’s strategy B1 is the strategy of player A out of all
available strategic choices that gives player A the highest payoff against strategy B1 .

Take a player’s perspective: For each of the choices of the other player, what is
the best choice for this player?

Underline the best-responses for all players and all strategy choices.
A best-response might not be unique. A player can have a number of strategies that are all best responses if they all earn the same
payoff, and earn a greater payoff than other strategies. In such cases, underline all of the best responses.

Player 2
Left Center Right

Top 2 ,3 0 ,2 0 ,1

Player 1 Middle 3 ,0 3 ,1 1 ,2

Bottom 4 ,0 2 ,2 0 ,1
Rationalizability

Never-Best Response
A Never-Best-Response is a strategy that is non-optimal against any strategy choice
of the other player.

Rationalizability
The set of strategies that survives iterated elimination of never-best-responses is called
rationalizable.

What strategy choices can be justified based on rationality alone?

Player 2
Left Center Right

Top 2 ,3 0 ,2 0 ,1

Player 1 Middle 3 ,0 3 ,1 1 ,2

Bottom 4 ,0 2 ,2 0 ,1

Top is a never-best-response for player 1, i.e. it is non-optimal no matter what player 2 does.
Iteratively Elimination Never-Best Responses

Player 2 Player 2
Left Center Right Left Center Right

Top 2 ,3 0 ,2 0 ,1 Top 2 ,3 0 ,2 0 ,1

Player 1 Middle 3 ,0 3 ,1 1 ,2 Player 1 Middle 3 ,0 3 ,1 1 ,2

Bottom 4 ,0 2 ,2 0 ,1 Bottom 4 ,0 2 ,2 0 ,1

Left is a never-best-response for player 2 and subsequently, Bottom is a never-best-response

for Player 1.

Player 2 Player 2
Left Center Right Left Center Right

Top 2 ,3 0 ,2 0 ,1 Top 2 ,3 0 ,2 0 ,1

Player 1 Middle 3 ,0 3 ,1 1 ,2 Player 1 Middle 3 ,0 3 ,1 1 ,2

Bottom 4 ,0 2 ,2 0 ,1 Bottom 4 ,0 2 ,2 0 ,1

Finally, Center is a never-best-response for player 2 and (Middle, Right) is the unique
outcome from iteratively eliminating never-best-responses in this game.
P - Beauty Contest (Guessing Game)

P - Beauty Contest (played as an earlier online game)

Players pick an integer from the interval [0, 100].

2
The winner of the game is the player whose choice is closest to 3 of the overall average.

2
Any number in the interval [68, 100] is a never-best-response and can be eliminated, since 3

of the average is at or below 66 32 even if every other player picks 100.

The remaining range of numbers is now [0, 67] and any number in the range [46, 67] is a
2
never-best-response and can be eliminated, since 3 of the average is at or below 44 23 even if
every other player picks 67.

Iterative elimination of never-best-response leads to the only rationalizable choices of 0 and 1.

Can you explain why picking 1 is rationalizable and the process does not unravel all the way to zero?
John Nash (Nash Equilibrium)

Born in Bluefield (West Virginia), mathematician and economist John Forbes Nash
(1928 - ) developed the equilibrium concept named after himself in his doctoral disser-
tation at Princeton in 1949. For this contribution and his mathematical bargaining theory
for cooperative games, he shared the 1994 Nobel Memorial Prize in Economics (with
Reinhard Selten and John Harsanyi). Nash was troubled for many years by mental ill-
ness, portrayed in the Academy Award winning movie, A Beautiful Mind (2001), which
is based on Sylvia Nasar’s biography of John F. Nash with the same title (Simon &
Schuster, 1998).

John F. Nash

Unfortunately, the game theory examples depicted in the movie A Beautiful Mind are misleading
and incorrect!

... but more on that later.

Nash Equilibrium I

Nash Equilibrium
A Nash Equilibrium is a list of strategies, one for each player, with the property that
each is a best response to the remaining strategies by the other players. (i.e. maximizes
the corresponding player’s payoff among available options).

Sundance Kid
Confess Deny

Confess -5 , -5 -1 , -10
Butch Cassidy
Deny -10 , -1 -2 , -2

The unique Nash equilibrium in the Prisoner’s Dilemma is for both criminals to
confess.

In a Nash equilibrium, no player has a profitable deviation to another strategy

given the other players’ equilibrium strategy.
Finding Nash Equilibria

Cell-by-Cell Method
For each cell check whether a player has a profitable deviation to another strategy choice given the other players’
equilibrium choice.

Strategy-by-Strategy
Simpler than cell-by-cell inspection, faster and is less likely to result in mistakes: For a given strategy of the other
player, mark the best-response; Nash equilibria are characterized by best responses of all players.

Player 2
Find all Nash equilibria. V W X Y Z

A 9 ,9 7 ,1 5 ,6 3 ,4 1 ,1

B 7 ,8 5 ,2 3 ,6 1 ,4 3 ,3

Player 1 C 5 ,6 3 ,3 1 ,8 9 ,7 1 ,5

D 3 ,9 1 ,9 9 ,4 7 ,9 5 ,9

E 1 ,2 9 ,8 7 ,7 5 ,6 3 ,7
Common Error I

One of the most common error in the analysis of equilibria is confusing equilibrium
strategies with equilibrium payoffs.

Player 2
X Y

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

The unique Nash-equilibrium of this game is (A,X), that is in equilibrium, Player 1

plays A and Player 2 plays X.

The equilibrium is NOT (3, 3), which are the payoffs players earn in equilibrium.
Common Error II

A slightly changed version of the previous game illustrates why this distinction is
important.

Player 2
X Y

A 3 ,3 1 ,1
Player 1
B 2 ,4 3 ,3

The game still has a unique Nash-equilibrium, which is (A,X), and the payoffs in
equilibrium are still (3,3).

The payoffs (3,3) do not uniquely identify the equilibrium outcome since (3,3) is
also obtainable if the players play (B,Y).
Nash Equilibrium II

Player 2
Left Center Right

Top 2 ,3 0 ,2 0 ,1

Player 1 Middle 3 ,0 3 ,1 1 ,2

Bottom 4 ,0 2 ,2 0 ,1

The unique Nash equilibrium in this game is (Middle, Right).

In this particular game, the unique outcome using iterative elimination of

dominated strategies, iterative elimination of never-best-responses and the Nash
equilibrium are all the same.
Dominated Strategies

Player 2
Left Center-Left Center-Right Right

Top 6 ,3 3 ,5 1 ,1 4 ,0

Upper-Mid 1 ,1 3 ,2 2 ,0 4 ,3
Player 1
Lower-Mid 5 ,2 4 ,3 3 ,2 5 ,2

Bottom 7 ,6 2 ,5 0 ,3 8 ,7

Find all the dominated strategies.

Rationalizability

Player 2
Left Center-Left Center-Right Right

Top 6 ,3 3 ,5 1 ,1 4 ,0

Upper-Mid 1 ,1 3 ,2 2 ,0 4 ,3
Player 1
Lower-Mid 5 ,2 4 ,3 3 ,2 5 ,2

Bottom 7 ,6 2 ,5 0 ,3 8 ,7

If a strategy is dominated, it must be a never-best-response.

Iterative Elimination of Never-Best-Responses is a stronger concept than

Iterative Elimination of Dominated Strategies, that is, the set of possible
outcomes can (potentially) be further narrowed down.

Find all the never-best-response strategies that were not dominated.

Nash Equilibrium

Player 2
Left Center-Left Center-Right Right

Top 6 ,3 3 ,5 1 ,1 4 ,0

Upper-Mid 1 ,1 3 ,2 2 ,0 4 ,3
Player 1
Lower-Mid 5 ,2 4 ,3 3 ,2 5 ,2

Bottom 7 ,6 2 ,5 0 ,3 8 ,7

If a strategy is a never-best-response, it can never be part of a Nash equilibrium.

The Nash equilibrium is a stronger concept than Iterative Elimination of

Never-Best-Responses, that is, the set of possible outcomes can (potentially) be
further narrowed down.

Find all the Nash equilibria.

Dominated Strategies, Rationalizability and the Nash Equilibrium

Player 2
Left Center-Left Center-Right Right

Top 6 ,3 3 ,5 1 ,1 4 ,0

Upper-Mid 1 ,1 3 ,2 2 ,0 4 ,3
Player 1
Lower-Mid 5 ,2 4 ,3 3 ,2 5 ,2

Bottom 7 ,6 2 ,5 0 ,3 8 ,7

All three concepts can give non-unique outcomes.

If either Iterative Elimination of Dominated Strategies or Iterative Elimination

of Never-Best-Responses results in a unique outcome, it must be a Nash
Equilibrium.
Three Players

Simultaneous-move games are often played with more than just two players.

Such situations can be handled by making the game matrix multidimensional.

Battle of the Networks

1 There are three television networks, CBC, CTV and Global.

2 The networks battle for share of viewers (0 − 100). Higher shares are preferred
due to higher advertising revenues.

3 The networks choose to schedule either a Sitcom or a Game Show.

Battle of the Networks

CBC and CTV choose within the tables and Global chooses across the tables.

Global CTV Global CTV

Sitcom Game Show
Sitcom Game Show Sitcom Game Show

Sitcom 38 , 31 , 33 33 , 35 , 32 Sitcom 36 , 30 , 34 35 , 35 , 30
CBC CBC
Game Show 32 , 34 , 34 30 , 36 , 34 Game Show 33 , 34 , 33 33 , 35 , 32

Payoffs are listed (CBC, CTV, Global).

The unique Nash equilibrium has CBC and Global choosing the sitcom, while
CTV chooses the game show.