Network Science

Lecture 5
Game Theory for Networks (II)

Prof. Chun-Hung Liu

Dept. of Electrical and Computer Engineering
National Chiao Tung University
Spring 2016

2016/4/10 Lecture 5: Game Theory for Networks (II) 1

 Extensive Form Games
• Here we present extensive form games which model multi-agent
sequential decision making.
• Our focus will be on multi-stage games with observed actions where: (1)
all previous actions are observed, i.e., each player is perfectly informed of
all previous events; (2) some players may move simultaneously at some
stage k. Extensive form games can be conveniently represented by game
trees as illustrated in the next examples.
• Example:

Figure: Entry
deterrence game.

2016/4/10 Lecture 5: Game Theory for Networks (II) 2

 Extensive Form Games
• We first consider an entry deterrence game, in which there are two
players (see the figure in the previous page). Player 1, the entrant, can
choose to enter the market or stay out. Player 2, the incumbent, after
observing the action of the entrant, chooses to accommodate him or fight
with him.
• The payoffs for each of the action profiles (or histories) are given by the
pair (x, y) at the leaves of the game tree: x denotes the payoff of player 1
(the entrant) and y denotes the payoff of player 2 (the incumbent).
• Example:

Figure: Investment
in duopoly.

2016/4/10 Lecture 5: Game Theory for Networks (II) 3

 Extensive Form Games
• The above example considers a duopoly investment game, in which there
are two players in the market.
• Player 1 can choose to invest or not invest. After player 1 chooses his
action, both players engage in a Cournot competition. If player 1 invests,
then they will engage in a Cournot game with c1 = 0 and c2 = 2 .
Otherwise, they will engage in a Cournot game with c1 = c2 = 2. We can
also assume that there is a fixed cost of f for player 1 to invest.
• We next formally define the extensive form game model.
• Definition of Extensive Form Game: An extensive form game G consists
of the following components:
• A set of players, I = {1, 2, . . . , I} .
• A set H of sequences, referred to as histories, defined as follows:

2016/4/10 Lecture 5: Game Theory for Networks (II) 4

 Extensive Form Games

• Let H k = {hk } be the set of all possible stage k histories. Then,

k is the set of all possible histories. If the game has a finite
H = [1 k=0 H
number (K+1) of stages, then it is a finite horizon game. We use H K+1 to
denote the set of all possible terminal histories.

• A set of pure strategies for each player, defined as a contingency plan of

how to playS in each stage k for every possible history h k . Let

Si (H ) = hk 2H k Si (hk ) be the set of actions available to player i at

k

stage k. Define ski : H k ! Si (H k ) such that si (hk ) 2 Si (hk ). Then the pure
strategy of player i is the set of sequences si = {ski }1k=0 , i.e., a pure strategy
of a player is a collection of functions from all possible histories into
available actions. A strategy profile s is given by the tuple s = (s1 , . . . , sI ).
Given a strategy profile s, we can find the sequence of actions generated: the
stage 0 actions are s0 = s0 (h0 ) , the stage 1 actions are s1 = s1 (s0 ), the stage
2016/4/10 Lecture 5: Game Theory for Networks (II) 5
 Extensive Form Games
2 actions are s2 = s2 (s0 , s1 ) , and so on. This is called the path or
outcome of strategy profile s.
• A set of preferences for each player. Since for finite horizon games,
terminal histories H K+1 specify an entire sequence of play, we can
represent the preferences of player i by a utility function ui : H K+1 ! R.
In most applications, the utility functions are additively separable over
stages, i.e., each player’s utility is some weighted average of single stage
payoffs. As the strategy profile s determines the path s0 , . . . , sk and hence
hK+1, we will use the notation ui (s)as the payoff to player i under the
strategy profile s.
• Example: We consider the extensive form game illustrated in the
following figure. Player 1’s strategies are given by functions
s1 : H 0 = ; ! S1 = {C, D}, which can be represented as two possible
strategies; C, D. Player 2’s strategies are given by functions
s2 : H 1 = {{C}, {D}} ! S2 , which can be represented as four possible
strategies; EG, EH, FG and FH. For the strategy profile s = (C, EG),

2016/4/10 Lecture 5: Game Theory for Networks (II) 6

 Extensive Form Games
the outcome is given by {C, E}. Similarly, for the strategy profile s=(D,
EG), the outcome will be {D, G}.

E F G H

Figure: Strategies in an extensive form game.

2016/4/10 Lecture 5: Game Theory for Networks (II) 7
 Extensive Form Games
• Example: Consider the following two-stage extensive form version of
matching pennies.

Figure: Two-stage extensive form version of matching pennies.

• Since a strategy should be a complete contingency plan, player 2 has 4
different pure strategies: heads following heads, heads following tails HH;
heads following heads, tails following tails HT; tails following heads, tails
following tails TT; tails following heads, heads following tails TH.
2016/4/10 Lecture 5: Game Theory for Networks (II) 8
 Extensive Form Games
• Identifying the pure strategies of players allows us to go from the
extensive form game to its strategic form representation:

Strategic form representation of the extensive form version of matching

pennies given in the previous figure.

• A Nash equilibrium of an extensive form game can be defined through

its strategic form representation, i.e., a pure strategy Nash equilibrium
of an extensive form game is a strategy profile s such that no player i can
do better with a different strategy, which is the familiar condition that
ui (si , s i ) ui (s0i , s i ) for all s0 .
i

2016/4/10 Lecture 5: Game Theory for Networks (II) 9

 Game Theory for Network Application (I)
• Many games are played over networks, in the sense that players’ payoffs
depend on others through a network-like structure. Classical examples
are the allocation of network flows in a communication network, or of
traffic in a transportation network.
• Since the routing decisions of each user usually affect the performance of
other users (through commonly shared links), this leads to a non-
cooperative routing game among the users.
• The first application presents here is the equilibria of such routing games.
• In particular, we shall consider the important engineering aspect of the
efficiency of the equilibrium, namely how “good” the equilibrium point is
compared to the socially optimal operating point (with respect to a
properly defined quality measure).
• Next, we first formally define a general routing model and the associated
equilibrium concepts. Then we demonstrate that inefficiencies might
occur at equilibrium due to selfish behavior.

2016/4/10 Lecture 5: Game Theory for Networks (II) 10

 Game Theory for Routing
• Before precisely formulating the routing model that will be the subject of
this lecture, consider the motivating network example depicted in the
following figure:

Figure: The Pigou example.

• There is one unit of load that needs to be routed from a source node to
a destination node. This load corresponds to aggregate load of
infinitesimal users (e.g., motorists in a transportation network).

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 Game Theory for Routing
• There are two alternative links (routes) that may carry the traffic. Each
link is characterized by a per-unit cost function. In the transportation
context, the cost may correspond to the (average) delay of a vehicle.
• Note that the cost in the upper link depends on the amount of load it
accommodates, while the load in the lower link is a constant, thus
congestion independent.
• Observe first that the socially optimal solution, i.e., the flow allocation
which minimizes the aggregate cost is to split traffic equally between the
two routes, giving
X 1 1 3
S S S
min Csystem (x ) = li (xi )xi = + = .
x1 +x2 1
i
4 2 4
• However, in a non-cooperative framework, the above solution does not
correspond to a Nash equilibrium. Indeed, consider the corresponding
game between the infinitesimal players (such games between an infinite
number of “small" users are often referred to as non-atomic games).

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 Game Theory for Routing
• The players that use the bottom link experience a cost which is strictly
higher than the cost experienced by players in the upper link, and
would therefore modify their routing decision. Consequently, the unique
Nash equilibrium of the game, also referred to as Wardrop equilibrium
(WE) is x1 = 1 and x2 = 0 (since for any x1 < 1, l1 (x1 ) < 1 = l2 (1 x1 )),
giving an aggregate cost of
X
WE
Ceq (X )= li (xW
i
E WE
)xi =1+0=1
i
• Note that the aggregate cost at the Wardrop equilibrium is larger than
the optimal cost by a factor of 4/3.

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 Routing Model
• We consider in this section networks with a single origin-destination
pair. Let N (V, A) be the directed network with V being the set of nodes
and A being the set of links. Denote by P the set of paths between the
origin and the destination. Let xp denote the flow on path p 2 P .
• We assume that each link i 2 A has a latency function li (xi ), where
X
xi = xp (1)
{p2P|i2p}

Here the notation p 2 P|i 2 p denotes the paths p that traverse

link i 2 A . The latency function captures congestion effects, hence the
latency is a function of the total flow on the link. We assume for simplicity
that li (xi ) is nonnegative, differentiable, and non-decreasing. We further
assume that all traffic is homogeneous, in the sense that all players (e.g.,
drivers) have the same experience when utilizing the link. The total
traffic is normalized to one, and the set of players is accordingly given
by I =. [0, 1]

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 Routing Model
• We denote a routing
P pattern by the vector x. If x satisfies (1), and
furthermore p2P xp = 1 and xp 0 for all p 2 P , then x is a feasible
routing pattern. The total delay (latency) cost of a routing pattern x is:
X
C(x) = xi li (xi )
i2A

• That is, it is the sum of latencies li (xi ) for each link i 2 A multiplied by
the flow over this link, xi , summed over all links A.
• The socially optimal routing xS is a feasible routing pattern that
minimizes the aggregate cost; it can be obtained as a solution of the
following optimization problem
X
minimize xi li (xi )
i2A
X
subject to xp = xi , for all i 2 E
{p2P|i2p}
X
xp = 1 and xp 1 for all p 2 P
p2P
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 Wardrop Equilibrium
• As indicated above, an underlying assumption in our routing model is
that each player is “infinitesimal”, i.e., has a negligible effect on overall
performance. A Wardrop equilibrium, which we formally define below, is
a convenient modeling tool when each participant in the game is small.
• This equilibrium notion can be regarded as a Nash equilibrium in this
game, where the strategies of the other players are replaced by aggregates,
due to the non-atomic nature of the game; in our specific context, the
aggregates correspond to the total traffic on different routes.
• Since a Wardrop equilibrium can be viewed as a Nash equilibrium with
an infinite number of small decision makers, it has to be the case that for
each motorist their routing choice must be optimal. This implies that if a
motorist k 2 I is using path p, then there does not exist path p0 such that
X X
li (xi ) > li (xi ).
i2p i2p0

• A Wardrop equilibrium is formally defined as follows.

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 Wardrop Equilibrium
• Definition: A feasible flow patters x is a Wardrop equilibrium if
X X
li (xi ) = li (xi ) for all p, p0 2 P with xp , x0p > 0, and
i2p0 i2p
X X
li (xi ) li (xi ) for all p, p0 2 P with xp > 0, xp0 = 0.
i2p0 i2p

• A fundamental property of the Wardrop equilibrium is that it can be

obtained via the solution of a convex optimization problem. This
important property suggests that a Wardrop equilibrium can be
characterized (i.e., computed) efficiently.

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 Inefficiency of the Equilibrium
• We saw from the Pigou example that the Wardrop equilibrium fails to
minimize total delay, hence it is generally inefficient when compared to
the performance at the social optimum. More generally, it is well known
that equilibria exhibit inefficiencies in diverse non-cooperative scenarios.
Koutsoupias and Papadimitriou introduced the term Price of Anarchy
(POA) to quantify these inefficiencies in games over all possible instances.
• In our routing context, let R0 denote the set of all routing instances,
covering all possible network topologies and all latency functions which
belong to a given family of functions (e.g., affine). Then the POA is
defined as the worst-case efficiency over all instances, namely
C(xS (R))
inf
R2R0 C(xW E (R))
• The Pigou example establishes that when restricting ourselves to affine
latency functions, the POA is at least 3/4 . There is one theorem that
establishes that the POA is exactly 3/4 , namely 3/4 is the worst possible
ratio between the social optimum cost and the cost at a Wardrop
equilibrium.
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 Game Theory for Network Application (II)
• The emerging use of wireless technologies for data communication has
brought to focus novel system characteristics which are of less
importance in wireline platforms.
• Power control and the effect of mobility on network performance are
good examples of topics which are prominent in the wireless area.
• An additional distinctive feature of wireless communications is the
possible time variation in the channel quality between the sender and the
receiver, an effect known as channel fading.
• Current wireless networks consist of a relatively large number of users
with heterogeneous Quality of Service (QoS) requirements (such as
bandwidth, delay, and power).
• To reduce the management complexity, decentralized control of such
networks is often to be preferred to centralized one.
• This requirement leads to distributed (or at least partially distributed)
network domains, in which end-users take autonomous decisions
regarding their network usage, based on their individual preferences.

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 Power Control Game
• In the context of wireless networks, self-interested user behavior can be harmful,
as network resources are often limited, and might be abused by a subset of greedy
users. In many cases, an individual user can momentarily improve its Quality of
Service (QoS) metrics, such as delay and throughput, by accessing the shared
channel more frequently. Aggressiveness of even a single user may lead to a chain
reaction, resulting in possible throughput collapse.
• Here we will focus on the uplink network model, where there exists a single
receiver (or base station), with multiple nodes transmitting to it. We will examine
how wireless mobiles use the information about the channel quality (referred to as
Channel State Information – CSI) in order to adjust their transmission
parameters.
• CSI can naturally be exploited for enhanced performance in a centralized setup;
however, the consequences of its use under self-interested behavior requires
sophisticated game-theoretic analysis.
• The choice of utilities in network games reflects certain tradeoffs between QoS
measures. In the context of wireless network, the salient measures are throughput
and power consumption.

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 Power Control Game
• Accordingly, the most commonly studied user objectives consist of
combinations of these two measures:
• Maximize throughput subject to an average power constraint.
• Minimize the average power consumption subject to a minimum
throughput constraint.
• Maximize the ratio between throughput and power consumption.
The corresponding utility in this case is referred to as the bit per
joule utility.
• Our focus here will be on the objective of minimizing power consumption
subject to throughput constraint. In often cases, a pricing term based on
resource usage is incorporated into the user utility, in order to regulate
the network to the desired operating point.
• As we shall see, pricing is not always required for social efficiency as the
objective of minimizing the power consumption could be self-regulating
on its own.

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 Power Control Game
• Here we consider a shared uplink in the form of a collision channel.
• A basic assumption of our user model is that each user has some
throughput requirement, which it wishes to sustain with a minimal
power investment.
• The required throughput of each user may be dictated by its application
(such as video or voice which may require fixed bandwidth), or
mandated by the system. A distinctive feature of our model is that the
channel quality between each user and the base station is stochastically
varying.
• For example, the channel quality may evolve as a block fading process
with a general underlying state distribution (such as Rayleigh, Rice, and
Nakagami-m).
• A user may base its transmission decision upon available channel state,
known as channel state information (CSI). This decision is selfishly made
by the individual without any coordination with other users, giving rise
to a non-cooperative game.
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 Power Control Game
• The following are some assumptions for the power control game
problem studied here:
• At the beginning of each time slot k, every user i obtains a channel state
information (CSI) signal ⇣i,k 2 Zi ⇢ R+, which provides an indication
(possibly partial) of the quality of the current channel between the user
and the base station (a larger number corresponds to a better channel
quality).We assume that each set Zi of possible CSI signals for user i is
finite and denote its elements by {zi1 , zi2 , . . . , zixi } with
zi1 < zi2 < · · · < zixi .
• We denote by Ri (zi ) > 0 the expected data rate (in bits per slot) that user
i can sustain at any given slot as a function of the current CSI
signal zi 2 Zi .We assume that the function Ri (zi ) strictly increases in zi .
• Zi = {⇣i,k }1 k=1
is an ergodic Markov chain; We denote by ⇡i the row
vector of steady state probabilities of the Markov chain Zi, and by ⇡im > 0
its m-th entry corresponding to state zim 2 Zi (signals with zero steady-
state probability are excluded from the set Zi ). (ii) The Markov chains Zi
i = 1, . . . , n , are independent.

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 Power Control Game
• We turn now to describe the user objective and the non-cooperative
game which arises as a consequence of the user interaction over the
collision channel.
• We associate with each user i has a throughput demand ⇢i (in bits per
slot) which it wishes to deliver over the network.
• The objective of each user is to minimize its average transmission
power (which is equivalent in our model to the average rate of
transmission attempts, as users transmit at a fixed power level), while
maintaining the effective data rate at (or above) this user’s throughput
demand.
• We further assume that users always have packets to send, yet they
may postpone transmission to a later slot to accommodate their
required throughput with minimal power investment.
• A general transmission schedule, or strategy, i for user i specifies a
transmission decision at each time instant, based on the available
information that includes the CSI signals and (possibly) the
transmission history for that user.
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 Power Control Game
• A transmission decision may include randomization (i.e., transmit with some
positive probability). Since we focus on stationary transmission strategies, we
will not bother with a formal definition of a general strategy.
• For our purpose, it suffices to assume that the collection of user strategies ( i )i2I
together with the channel description, induce a well defined stochastic process
of user transmissions.
• Obviously, each user’s strategy i directly affects other users’ performance
through the commonly shared medium. The basic assumption of our model is
that users are self-optimizing and are free to determine their own transmission
schedule in order to fulfill their objective.
• We further assume that users are unable to coordinate their respective
decisions. This situation is modeled and analyzed in this section as a non-
cooperative game between the n users.
• We denote by = ( 1 , . . . , n )the strategy-profile comprised of all users’
strategies. The notation is used
i for the transmission strategies of all
users but the i-th one.

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 Power Control Game
• For each user i, let pi ( ) be the average transmission rate (or transmission
probability), and let ri ( ) be the expected average throughput as
determined by the user’s own strategy i and by the strategies of all other
users i .
• Further denote by ci,k the indicator random variable which equals one if
user i transmits at slot k and zero, otherwise, and by ri,k the number of data
bits successfully transmitted by user i at the same time slot. Then
K
!
1 X
pi ( ) = lim E ci,k ,
K!1 K
k=1
K
!
1 X
ri ( ) = lim E ri,k ,
K!1 K
k=1
where E stands for the expectation operator under the strategy-profile σ.
• A Nash equilibrium (NE) is a strategy-profile = ( 1 , . . . , n ), which is
self-sustaining in the sense that all throughput constraints are met, and no
user can lower its transmission rate by unilaterally modifying its
transmission strategy.
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 Power Control Game
• Definition (Nash equilibrium point): A strategy-profile = ( 1, . . . , n)
is a Nash equilibrium point if
2 arg min{pi (˜i , i) : ri (˜i , i) ⇢i }
˜i
The transmission rate pi can be regarded as the cost which the user
wishes to minimize. Using game-theoretic terminology, a Nash
equilibrium is a strategy-profile = ( 1 , . . . , n ) so that each iis a best
response of user i to i , in the sense that the user’s cost is minimized

• Our focus in this section is on locally stationary transmission strategies, in

which the user’s decision whether to transmit or not can depend (only) on
its current CSI signal (for simplicity, we shall henceforth refer to such
strategy just as stationary strategy, yet recall that local information only
is employed by each user).

• A formal definition for a stationary strategy is provided below.

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 Power Control Game
• Definition (Stationary strategies): A stationary strategy for user i is a
mapping i : Zi ! [0, 1]. Equivalently, a stationary strategy will be
represented by an xi-dimensional vector si = (s1i , . . . , sxi i ) 2 [0, 1]xi,
where the m-th entry corresponds to the user i’s transmission probability
when the observed CSI signal is zim. For example, the vector (0, . . . , 0, 1)
represents the strategy of transmitting (w. p. 1) only when the CSI signal
is the highest possible. Note that the transmission probability in a slot,
which is a function of si only, is given by
xi
X
pi (si ) = sm
i ⇡ m
i .
m=1

• Let s , (s1 , . . . , sn ) denote a stationary strategy-profile for all users.

Evidently, the probability Q that no user from the set I \ i transmits in a
given slot is given by j6=i (1 pj (sj )) . Since the transmission decision of
each user is independent of the decisions of other users, the expected
average rate ri (si , s i ) is given by

2016/4/10 Lecture 5: Game Theory for Networks (II) 28

 Power Control Game
" xi
#
X Y
ri (si , s i ) = sm m m
i ⇡i Ri (zi ) (1 pj (sj ))
m=1 j6=i
Pxi
where the expression m=1 sm m m
i ⇡i Ri (zi ) stands for the average rate which
is obtained in a collision-free environment under the same strategy si.
• Definition (Threshold strategies): A threshold strategy is a stationary
strategy of the form si = (0, 0, . . . , 0, sm
i
i
, 1, 1, . . . , 1), s mi
i 2 (0, 1] where
mi
zi is a threshold CSI level above which user i always transmits, and
below which it never transmits. An important observation, which we
summarize next, is that users should always prefer threshold strategies.
• Lemma: Assume that all users access the channel using a stationary
strategy. Then a best response strategy of any user i is always a threshold
strategy.
• Lemma: The mapping si = (0, 0, . . . , 0, sm
i , 1, 1, . . . , 1) 2 Ti ! pi = pi (si ) 2 [0, 1]
i is
surjective (one-to-one and onto) mapping from the set of threshold
strategies Ti to the interval [0,1].
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 Power Control Game
• Given this mapping, the stationary policy of each user will be henceforth
represented through a scalar pi 2 [0, 1] , which uniquely determines the
CSI threshold and its associated transmission probability, denoted by
zimi (pi ) and smi (pi )
i
, respectively.
• Consequently, the user’s expected throughput per slot in a collision free
environment, denoted by Hi , can be represented as a function of ⇡i only,
namely
xi
X
Hi (pi ) , sm
i
i
(p i )⇡ mi
i (p i )R i (z mi
i (p i )) + ⇡ m
i R i (z m
i ),
m=mi (pi )+1

where mi (pi ) denotes the index of the threshold CSI and ⇡imi (pi ) denotes
its probability. This function will be referred to as the collision-free rate
function.
• Using this function, we may obtain an explicit expression for the user’s
average throughput, as a function of p = (p1 , . . . , pn ), namely
Y
ri (pi , p i ) = Hi (pi ) (1 pj ).
j6=i
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 Power Control Game
• Lemma: The collision-free rate function Hi satisfies the following
properties.
• Hi (0) = 0
• Hi (pi ) is a continuous and strictly increasing function over pi 2 [0, 1]
• Hi (pi ) is concave.

• The Equilibrium Equations: A key property which is useful for the

analysis is that every Nash equilibrium point can be represented via a set
of n equations in the n variables p = (p1 , . . . , pn ).

• Proposition (The equilibrium equations): A strategy-profile p = (p1 , . . . , pn )

is a Nash equilibrium point if and only if it solves the following set of
equations
Y
ri (pi , p i ) = Hi (pi ) (1 pj ) = ⇢j , i 2 I
j6=i

(This set of equations are called equilibrium equations)

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 Power Control Game
• Obviously, if the overall throughput demands of the users are too high,
there cannot be an equilibrium point since the network naturally has
limited traffic capacity.
• Denote by ⇢ = (⇢1 , . . . , ⇢n ) the vector of throughput demands, and let ⌦
be the set of feasible vectors ρ, for which there exists at least one Nash
equilibrium point.
• The following figure illustrates the set of feasible throughput demands
for a simple two-user case, with Hi (pi ) = pi . .

Figure: The set of feasible

throughput demands for a two
user network with Hi (pi ) = pi .

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 Power Control Game
• In particular, note that ⌦ is a closed set with nonempty interior. We
can now specify the number of equilibrium points for any throughput
demand vector ⇢ = (⇢1 , . . . , ⇢n ) . When throughput demands are
within the feasible region, we establish that there are exactly two Nash
equilibria.

• Theorem: Consider the non-cooperative game model under stationary

transmission strategies. Let ⌦ be the set of feasible throughput demand
vectors ⇢ = (⇢1 , . . . , ⇢n ) , and let ⌦0 be its (non-empty) interior. Then for
each ⇢ 2 ⌦0, there exist exactly two Nash equilibria.

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