Sequential Move Games

(Dynamic Games):
• Players move sequentially.

• Perfect Information: In a game if all players

know the history of the game, then we say
that it is game of Perfect Information.

• The second Player knows the move made by

the first mover.
 Check the Sequential Battle of
Sexes:
• This game is structurally different from the standard
static battle of sexes. So this is a different game.

• To fix ideas suppose the Husband is the first mover.

• We will depict this game in the extensive form:

 Husband

F O

Wife Wife

F O F O

4 0 0 2
2 0 0 4

3
Strategies:
A strategy is a complete plan of action – it specifies a
feasible action for the player in every contingency in which
the player might be called on to act.

The Husband has one disguisable circumstance, since he is

the first mover. For him Action and Strategies are the same.

For the Wife there are two distinguishable circumstances.

First is when the Husband Plays F and the other when the
Husband plays O.
• Thus or a „Complete Plan of Action‟ the wife needs to
specify an action for each possible actions of the
Husband.

• Thus one „Complete Plan of Action‟ of the wife will be

(FF). It says that the wife will choose Football (F)
whatever the husband does.

• There are other three possible strategies of the wife.

Those are (FO), (OF), (OO).

• (FO) says that the wife chooses F if the Husband

chooses F, wife chooses O if the Husband chooses O.
Similarly (OF) and (OO).
• Thus the wife‟s strategy set has 4 elements.
Sw = { (FF), (FO), (OF), (OO) }. This is different from
her action set which was {F,O}.

• Note that the relevant solution concept in dynamic games

is “Subgame Perfect Nash Equilibrium” (SPNE).

• But to find SPNE, the first step is to find the „Nash

equilibrium‟ of this sequential battle of sexes.

• To find the NE of this game we need to draw the Normal

form (Strategic Form) of this sequential battle of sexes
game.
Normal Form (Strategic Form) of Sequential
Battle of Sexes:
Help me fill in the game….

W’s Strategies

FF FO OF OO
F
H’s
Strategies O
Normal Form of Sequential Battle of Sexes

W’s Strategies

FF FO OF OO
F 4,2 4,2 0,0 0,0
H’s
Strategies O 0,0 2,4 0,0 2,4
• Now find the NE of the above game.

• We will get 3 NE.

• {F, (FF)}, {F, (FO)} and {O, (OO)}. (Note that
equilibria are written in terms of strategies,
NOT actions)
• Now some of the NE doesn‟t make much
sense. Put differently those rely on „non-
credible threats‟ and some irrational-actions
on part of some players.

• So we need refinement.
• SPNE is an improvement over the set of NE
after refinement.

• To understand SPNE, we first need to know

the concept of sub-games.

• Subgame Definition: A piece of game that

remains to be played beginning at any point at
which the complete history of the game thus
far is common knowledge among players.
(Pretty confusing!!!....see next page….)
• Sub-game Crtiteria:
1). A sub-game should start from an singleton
information set say „n‟.

2). Includes all the decision and terminal nodes

that follow „n‟ and doesn’t contain nodes that
doesn’t follow „n‟.

3). A subgame must not cut any information set.

 Congress

Doesn’t seek Left Support Seeks left Support

Left Left

Not Willing Willing Not Willing Willing

AAP AAP AAP AAP

Join Not Join Not Join Not Join Not

Note: AAP knows whether the coalition is formed or Not. It doesn’t

know why the Coalition didn’t materialize (the reason of not
materializing) 12
• SPNE Definition:

• At an SPNE all players strategies constitute a

Nash Equilibrium in „every subgame‟.
(Reinhard Selten)

• Put simply: All players should act optimally in every sub-

game. (Taking some liberty in explaining)
• We now revisit the Dynamic Battle of Sexes.

• There are 2 proper subgames.

• One that starts after Husband plays F and the other that
starts after the Husband plays O.

• Check {F, (FF)} first. In the wife‟s strategy the second „F‟
of (FF) is not optimal. So {F, (FF)} fails the subgame
perfect „test‟.

• The case of an “irrationally benevolent” wife.

• Next Check {O, (OO)}.

• Note in the wife‟s strategy the first „O‟ of (OO) is not

optimal. So {O, (OO)} fails the subgame perfect „test‟.

• Put differently this {O, (OO)} rests on the „non-credible

threat‟ that

• Thus SPNE rules out „non-credible threats‟.

• Finally check {F, (FO)}.

• Note in the wife‟s strategy the first „F‟ of (FO) is optimal.

• Again the second „O‟ of (FO) is also optimal.

• Thus wife‟s strategy is optimal in ‟every subgame‟.

• Given (FO), it is optimal for the Husband to play „F‟ in the

first stage.

• Thus {F, (FO)} passes the Subgame Perfect criteria.

• Thus SPNE rules out „non-credible threats‟.

• Thus the only NE that is subgame perfect is {F, (FO)}. The

rest are not.

• ONCE AGAIN: Equilibria are written in terms of

Strategies”, NOT Actions.

• The way of solving the entire game is “Backward

Induction”.

• Look at the future, analyse it, fold back the tree and find
the optimal „now‟. This is “Backward Induction”.
Dynamic games with complete information
Can be divided in:
Perfect information: at each move in the game, the player
with the move knows the full history of the play of the game
so far…
Imperfect information: at some move the player with the
move does not know the history of the game.

Repeated Games are Dynamic Games of Imperfect

Information. (will do later)
• Backwards Induction with continuous
strategies
• Example: Stackelberg model of duopoly
• Firm 1 produces q1
• Firm 2, observes q1 and produces q2
• Compute R(q1) = Firm 2’s optimal response to an
arbitrary level of production by Firm 1.
• R(q1) is Firm 2’s best response.
• Compute what is the optimal q1 for Firm 1 if she
know that Firm 2 will produce R(q1)
• P=a-b(q1+R(q1))
• Analyze and solve, take a linear market demand.