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UNIT 2 BUILDING STRATEGIES IN

SIMULTANEOUS GAMES
Created @September 29, 2022 10:12 AM

Class GAME THEORY AND STRATEGIC MANNER

Type Study Group

https://aulavirtual.uv.es/pluginfile.php/2683795/mod_resource/content/0/02_Building-
Materials strategies-in-simultaneous-games_Complete.pdf

Reviewed

2.1 SIMULTANEOUS GAMES

A simultaneous game is a game in which:

All players make their decisions at the same time.

Or without knowledge of what their rivals have chosen to do.

Example: Rock - Paper - Scissors

In a simultaneous game, you have to figure out what your opponent is going to do right now
(knowing that your opponent is also trying to figure out what you will do)

A game with COMPLETE INFORMATION: The strategy sets, the payoff functions and the
rationality (the motivation) of all players are common knowledge.

COMMON KNOWLEDGE means that every players knows it, everybody knows that everybody
knows it, everybody knows that everybody knows that everybody knows it…

To represent a simultaneous game, we have to design a strategic form of a game with:

Players

Actions

Utility or payoff functions

And if possible: a payoff matrix

2.2 PRISONER’S DILEMMA

The Prisoner’s Dilema is a situation in which we have two criminals that have been arrested and
are guilty of murder. The police can prove illegal weapon’s possession, but cannot establish that
either criminal committed murder unless at least one of them confesses.

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 The police separate the two criminals and ask them to confess. The consequences of their actions
are the next ones:

If both prisoners do not confess, they will get 2 years in prison each one because of
weapon’s possession

If one confesses and the other does not, the confessor goes free and the one that did not
confess gets 30 years in prison

If both prisoners confess, each one gets 15 years in prison

This game allow’s us to represent the payoffs in a matrix because we have 2 players and 2 actions,
a 2 by 2 game.

NOT CONFESS CONFESS ROWS (filas): Actions of

PLAYER 1
NOT CONFESS -2 , -2 -30 , 0

CONFESS 0 , -30 -15 , -15 COLUMNS: Actions of

PLAYER 2

CELLS: Payoff of PLAYER 1,

payoff of PLAYER 2

⚠ WE ASSUME THAT PLAYERS ARE SELFISH AND THAT THEY ARE ONLY PLAYING ONCE
⚠
If PLAYER 1 thinks that PLAYER 2 is not going to confess, PLAYER 1 should confess,
because being 0 years in prison is better than being 2 years.

If PLAYER 1 thinks that PLAYER 2 is going to confess, PLAYER 1 should confess too,
because being 15 years in prison is better than being 30 years.

If PLAYER 2 thinks that PLAYER 1 is not going to confess, PLAYER 2 should confess too,
because being 0 years in prison is better than being 2 years.

If PLAYER 2 thinks that PLAYER 1 is going to confess, PLAYER 2 should confess too,
because being 15 years in prison is better than being 30 years.

2.3 DOMINATED ACTIONS AND DOMINANT ACTIONS

An action of a player is dominant if it yields higher payoffs than any other action, for any possible
combination of actions of her rivals. No matter what the others might be doing, the player will
always prefer to play the same action. We will say that the opposite is a dominated action
(strategy).

In the Prisoners’ Dilema (PD), confessing is a dominant action. Regardless of what the other
does, you will always prefer to confess.

In the Prisoners’ Dilema (PD), not confessing is a dominated action. Regardless of what the
other player does, you will never prefer to stay silent.

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 2.4 EFFICIENCY
An outcome of a game is a vector of final payoffs, one for each player. An outcome of a game is
called efficient if there is no other outcome that is feasible and that yields a higher payoff to
at least one player without giving a lower payoff to any player (Pareto efficiency). An
outcome which is not efficient is called inefficient.

Is the (C, C) (-15, -15) outcome efficient?

NO. There is another outcome where at
NOT CONFESS CONFESS
least one of the two players is better off
NOT CONFESS -2 , -2 -30 , 0 without the other one being worse off.
CONFESS 0 , -30 -15 , -15 EFFICIENT

INEFFICIENT

2.5 GAMES WITH A PD STRUCTURE

Each player has a cooperative action, such that if everybody plays it, an efficient outcome is
achieved. It is dominated. Each player has a non-cooperative action such that if everybody plays it,
an inefficient outcome is achieved. It is dominant. Not confess is the cooperative action
(dominated); confess is the non-cooperative action (dominant).

The payoff structure associated with the prisoners dilemma arises in many quite varied strategic
situations: in economic, social, political, and even biological competitions. The rational outcome in
a prisoner’s dilemma is a bad outcome for the players, they would be better off if they
cooperated. What can players do to achieve the better outcome?

2.6 BEST RESPONSE ANALYSIS

A rational player (that is, a utility maximiser):

If she has strictly dominant action in a game, she will play it.

if she does not have a strictly dominant action in a game, but has a weakly dominant
action, she will play it

She will never play a dominated action

Notice that to calculate any of these concepts a player only needs to know her own payoffs

From actions to strategies:

A strategy is a complete plan of action contingent on each possible scenario

In a simultaneous game that is only played once, a strategy indicates what to do for each possible
action of the other player.

DOMINANT ACTION = DOMINANT STRATEGY

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 DOMINATED ACTION = DOMINATED STRATEGY

A best-response function indicates the strategy (or strategies) that maximise

your payoff for each of the combination of strategies of the rest of players.

It tells you the best choice (or choices) of this player, for each of the choices that the other players
might be making. Notice that to calculate this function a player only needs to know her own payoffs.

Best-response function:
The player’s best-response functions provide us with an alternative method in two-player games to
find dominance relations.

If a player has always a unique best response for any opponents’ combination of actions,
then tis action is her dominant action.

If a player has an action that is always a best response (although not necessarily unique),
then it’s her weakly dominant action.

If there is an action that is never a best response, then it will be a dominated action.

2.7 SUCCESSIVE ELIMINATION OF DOMINATED ACTIONS

A rational player will never play dominated strategy. But if the game has complete informations,
then all players’ rationality and payoffs are common knowledge among them. Players will use this
information to mutually anticipate that dominated strategies will not be played and will remove
them from consideration. Removing dominated strategies reduces the size of the game and then
the “new” game may have another dominated strategies. If this process keeps working until a
unique outcome is reached, then the game is said to be dominance solvable. Notice that each
round or iteration in the process is justified by another step in the common knowledge’s
chain.

LEFT (L) MIDDLE (M) RIGHT (R)

UP (U) 3, 0 3, 5 -100, 3

DOWN (D) 0, 5 0, 3 3, 0

For player 2, playing RIGHT is a dominated action so she will never play it

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 By succesively eliminated dominated actions, we have reached a unique outcome (U,M)-(3,5). So
this game is dominance solvable.
Notice that in this example, the two rounds of successive elimination of dominated strategies are
justified by the two first steps of the common knowledge’s chain:

Both players know each other’s rationality and payoffs

Both players know that they know each other’s rationality and payoffs

But you have to be completely sure about the rationality and payoffs of your opponent, because if
this is not the case, player 1 is running a very high risk by playing U.

2.8 GENERALISED PD
Four individuals have to decide simultaneously their contribution to a public good. Individual
contributions x¡ can adopt only three values: 0, 100 or 200. The payoff function of each player
given a combination of contributions, would be (where 0.5 is the marginal return of the public
good):

a) What would the individuals’ contributions be?

Rearranging player’s 1 payoff function:

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 b) Calculate the efficient outcome in this situation:

The outcome where social welfare is maximal is also Pareto efficient. But not all Pareto
efficient outcomes maximise Social Welfare. Notice that marginal private and social costs
from contributing an additional euro coincide (namely, its value is 1) but, while the marginal
private revenue is 0.5, the marginal social revenue is 2.

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