Game Theory

Sequential and
Simultaneous Moves

Simultaneous-move games in tree

from

Moves are simultaneous because players cannot

observe opponents decisions before making moves.
EX: 2 telecom companies, both having invested $10
billion in fiberoptic network, are engaging in a price war.

CrossTalk

High
Low

GlobalDialog
High
Low
2, 2
-10, 6
6, -10
-2, -2

Gs information set
C

High
Low

G
G

High
Low
High
Low

(2, 2)
(-10, 6)
(6, -10)
(-2, -2)

C moves before G, without knowing Gs moves.

G moves after C, also uncertain with Cs moves.
An Information set for a player contains all the nodes
such that when the player is at the information set, he
cannot distinguish which node he has reached.

A strategy is a complete plan of action,

specifying the move that a player would
make at each information set at whose
nodes the rules of the game specify that is
it her turn to move.
Games with imperfect information are
games where the players information sets
are not singletons (unique nodes).

Battle of Sexes
Starbucks
Sally
Banyan

Starbucks 1, 2
Banyan
0, 0
Starbucks 0, 0
Banyan
2, 1

Harry
Harry

Harry

Sally

Starbucks

Banyan

Starbucks

1, 2

0, 0

Banyan

0, 0

2, 1

Two farmers decide at the

beginning of the season
what crop to plant. If the
season is dry only type I
crop will grow. If the
season is wet only type II
will grow. Suppose that
the probability of a dry
season is 40% and 60%
for the wet weather. The
following table describes
the Farmers payoffs.

Dry

Crop 1 Crop 2

Crop 1 2, 3

5, 0

Crop 2 0, 5

0, 0

Wet

Crop 1 Crop 2

Crop 1 0, 0

0, 5

Crop 2 5, 0

3, 2

A
Dry 40%
Nature
Wet 60%
A

1
2
1
2

1
2

B
B
B
B

1
2
1
2
1
2

2, 3
5, 0
0, 5
0, 0
0, 0
0, 5
5, 0
3, 2

When A and B both choose Crop 1, with a 40% chance

(Dry) that A, B will get 2 and 3 each, and a 60% chance
(Wet) that A, B will get both 0.
As expected payoff: 40%x2+60%x0=0.8.
Bs expected payoff: 40%x3+60%x0=1.2.

0.8, 1.2

2, 3

3, 2

1.8, 1.2

Combining Sequential and Simultaneous Moves I

GlobalDialog has invested $10 billion. Crosstalk is

wondering if it should invest as well. Once his decision is
made and revealed to G. Both will be engaged in a price
competition.
G
I

C
NI

High

Low

High

2, 2

-10, 6

Low

6, -10

-2, -2

High
Low

0, 14
0, 6

Subgames

G
C

NI

High
Low

I
G

High
Low

2, 2

High

6, -10

Low
High
Low
0, 14
0, 6

-10, 6
-2, -2

Subgame (
Morrow, J.D.: Game Theory for Political Scientists
)

It has a single initial node that is the only member of

that node's information set (i.e. the initial node is in a
singleton information set).
It contains all the nodes that are successors of the
initial node.
It contains all the nodes that are successors of any
node it contains.
If a node in a particular information set is in the
subgame then all members of that information set
belong to the subgame.

Subgame-Perfect Equilibrium
A configuration of strategies (complete
plans of action) such that their
continuation in any subgame remains
optimal (part of a rollback equilibrium),
whether that subgame is on- or offequilibrium. This ensures credibility of the
strategies.

C has two information sets. At one, hes

choosing I/NI, and at the other hes
choosing H/L. He has 4 strategies, IH, IL,
NH, NL, with the first element denoting his
move at the first information set and the
2nd element at the 2nd information set.
By contrast, G has two information sets
(both singletons) as well and 4 strategies,
HH, HL, LH, and LL.

HH

HL

LH

LL

IH

2, 2

2, 2

-10, 6

-10, 6

IL

6, -10

6, -10

-2, -2

-2, -2

NH

0, 14

0, 6

0, 14

0, 6

NL

0, 14

0, 6

0, 14

0, 6

(NH, LH) and (NL, LH) are both NE.

(NL, LH) is the only subgame-perfect
Nash equilibrium because it requires C to
choose an optimal move at the 2nd
information set even it is off the
equilibrium path.

Combining Sequential and Simultaneous Moves II

C and G are both deciding simultaneously if

he/she should invest $10 billion.
G
I
C

I
N

0,

14

N
,0
0, 0

14

6
G

2, 2

-10, 6

6, -10

-2, -2

I
N

G
I
-2, -2
0, 14

N
14, 0
0, 0

One should be aware that this is a simplified

payoff table requiring optimal moves at every
subgame, and hence the equilibrium is the
subgame-perfect equilibrium, not just a N.E.

Changing the Orders of Moves in a

Game

Games with all players having dominant

strategies
Games with NOT all players having dominant
strategies
FED
Low interest High interest
rate
rate

CONGRESS

Budget balance 3, 4

1, 3

Budget deficit

2, 2

4, 1

F moves first

Fed

Congress

Low
High
Congress

Balance

4, 3

Deficit

1, 4

Balance

3, 1

Deficit

2, 2

C moves first

Congress

Fed

Balance
Deficit
Fed

Low

3, 4

High

1, 3

Low

4, 1

High

2, 2

First-mover advantage (Coordination Games)

SALLY
Starbucks

Banyan

Starbucks

2, 1

0, 0

Banyan

0, 0

1, 2

HARRY

H first

Harry

Sally
Starbucks

Banyan
Sally

Starbucks

2, 1

Banyan

0, 0

Starbucks

0, 0

Banyan

1, 2

S first

Sally

Harry
Starbucks

Banyan

Starbucks

2, 1

Banyan

0, 0

Starbucks

0, 0

Harry Banyan

1, 2

Second-mover advantage (Zero-sum Games,

but not necessary)
Navratilova

Evert

DL

CC

DL

50

80

CC

90

20

E first

Evert

Nav.
DL

CC
Nav.

DL

50, 50

CC

80, 20

DL

90, 10

CC

20, 80

N first

Nav.

Evert
DL

CC
Evert

DL

50, 50

CC

10, 90

DL

20, 80

CC

80, 20

Homework
1.
2.

Exercise 3 and 4
Consider the example of farmers but now change the
probability of dry weather to 80%.
(a) Use a payoff table to demonstrate the game.
(b) Find the N.E. of the game.
(c) Suppose now farmer B is able to observe A move
but not the weather before choosing the crop shell
grow. Describe the game with a game tree.
(d) Continue on c, use a strategic form to represent the
game.
(e) Find the N.E. in pure strategies.