Go, change the world

GAME THEORY(18CS7F2)
7th Semester,
CSE department
Faculty: Anitha Sandeep

UNIT-4
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Contents
• Bayesian Games, Extensive Games with Imperfect Information
Motivational examples
General definitions
Two examples concerning information
Illustrations: Cournot’s duopoly game with imperfect information
Providing a public good
Auctions: Auctions with an arbitrary distribution of valuations
Extensive games with imperfect information
Strategies.
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Bayesian Games-Motivational examples

• So far we have assumed that each player knows the payoff of other
payers. But in several games, the payoff’s of other players are not known.
Ex: Auction
• Several real life scenarios there is uncertainty regarding payoff’s of other
players.
• A strategic games with imperfect information is called Bayesian Games.
• These games in which there is uncertainty regarding payoffs of others are
known as Bayesian Games.
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Real life examples of Bayesian games

• Bargaining over a surplus and you aren’t sure of the size
• Buying a car of unsure quality
• Job market: candidate is of unsure quality
• Juries: unsure whether defendant is guilty
• Auctions: sellers, buyers unsure of other buyers’ valuations
Ex: Bayesian BoS
ie,. Player1 is unsure whether player2 prefers to go out with him or
prefers to avoid him, whereas player2 knows player1’s preferences.
Suppose player1 knows that with probability  ½, player2 wants to go
out with him and with remaining  ½ probability player2 wants to avoid
him.
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The strategy profile will be (B,(B,B))

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So the game table where player1 is H/W (B, B) (B, O) (O,B) (O, O)
of type I and player2 of both types B (2*, (1’, 0)) (1*, (1’, 2”)) (1*, (0, 0)) (0, (0, 2”))
will be as below:
O (0, (0, 1”)) (½, (0, 0)) (½, (2’, 1”)) (1*, (2’, 0))

Bayesian Best Response: Payoff averaged wrt probabilities of various

types of other players.
For Player1,
B1(B, B) ={B} B1(B, O) ={B} B1(O, B) ={B} B1(O, O) ={O}
For Player2 of I type,
B2(B) = {B} B2(O) = {O}
For Player2 of U type,
B2(B) = {O} B2(O) = {B} ∴ (B,(B,O)) is Bayesian NE =((B,_)(B,O)
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Similarly the game table where H/W (B, B) (B, O) (O,B) (O, O)

player1 is of type U and player2 B (0, (1’, 0)) (1*, (1’, 2”)) (1*, (0, 0)) (2*, (0, 2”))
of both types will be as below:
O (1*, (0, 1”)) (½, (0, 0)) (½, (2’, 1”)) (0, (2’, 0))

Bayesian Best Response: Payoff averaged wrt probabilities of various

types of other players.
For Player1,
B1(B, B) ={O} B1(B, O) ={B} B1(O, B) ={B} B1(O, O) ={B}
For Player2 of I type,
B2(B) = {B} B2(O) = {O}
For Player2 of U type,
B2(B) = {O} B2(O) = {B} ∴ (B,(B,O)) is Bayesian NE=((_,B)(B,O)
 H/W B O Go, change the world
Similarly the game table where (B,B) ((2*,0),1") ((0,2'),0)

player2 is of type I and player1 (B,O) ((2*,1'),2/3") ((0,0),2/3")

of both types will be as below: (O,B) ((0,0),1/3) ((1*,2'),4/3")

(O,O) ((0,1'),0) ((1*,0),2")

Bayesian Best Response: Payoff averaged wrt probabilities of various

types of other players.
For Player2,
B2(B, B) ={B} B2(B, O) ={B,O} B1(O, B) ={O} B1(O, O) ={O}
For Player1 of I type,
B1(B) = {B} B1(O) = {O}
For Player1 of U type,
B1(B) = {O} B1(O) = {B} ∴ ((B,O),B) , ((O,B),O) are Bayesian
NE=((B,O)(B,_), ((O,B),(O,_)
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H/W B O
Similarly the game table where (B,B) ((2*,0),0) ((0,2'),2")
player2 is of type U and player1 (B,O) ((2*,1'),1/3) ((0,0),4/3")
of both types will be as below:
(O,B) ((0,0),2/3") ((1*,2'),2/3")

(O,O) ((0,1'),1") ((1*,0),0)

Bayesian Best Response:
Payoff averaged wrt probabilities of various types of other players.
For Player2,
B2(B, B) ={O} B2(B, O) ={O} B1(O, B) ={B, O} B1(O, O) ={B}
For Player1 of I type,
B1(B) = {B} B1(O) = {O}
For Player1 of U type,
B1(B) = {O} B1(O) = {B} ∴ ((O,B),O) is Bayesian NE=((O,B),(_,O)
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Similarly the game table where both player1 and player2 are of both
types will be as below:

∴ ((B,B),(B,O)) and ((O,B)(O,O)) are Bayesian NE

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Bayesian BoS(all 4 cases)
• Consider variant of situation modeled by BoS, in which neither player
knows whether the other wants to go out with her. Specifically, suppose
player1 thinks that with probability ½ player2 wants to go out with her,
and with probability player2 wants to avoid her, and player2 thinks that
with probability ⅔ player1 wants to go out with her, and with probability
⅓ player1 wants to avoid her. Each player knows her own preferences.
Model this by introducing 4 states, one for each of possible
configurations of preferences.
Soln: yy state indicate both players want to go out with other
yn state indicate player1 want to go out with player2, but player2 wants to
avoid player1
ny state indicate player1 want to avoid player2, but player2 wants to go
out with player1
nn state indicate both players avoiding other player.
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• The fact that player1 does not know player2 preferences means that
she cannot distinguish between states yy and yn or between states ny
and nn. Similarly player2 does not know player1 preferences means that
she cannot distinguish between states yy and ny or between states yn
and nn. We can model player’s information by assuming that each
player receives a signal before choosing an action. Player1 receives
signal y1 in states yy and yn and a different signal n1 in states ny and nn;
Player2 receives signal y2 in states yy and ny and a different signal n1 in
states yn and nn. After player1 receives signal y1, she is referred to as
type y1 of player1; after she receives signal n1 she is referred to as type
n1 of player1. similarly player2 has two types, y2 and n2.
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Bayesian BoS(all 4 cases)

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Definition of Bayesian Game

A Bayesian game consists of
• A set of players
• A set of states
And for each player,
• A set of actions
• A set of signals that she may receive and a signal function that
associates a signal with each state
• For each signal that she may receive, a belief about the states
consistent with the signal(probability distribution)
• A Bernoulli payoff function over pairs (a, ω), where a is an action
profile and ω is a state, the expected value of which represents
player’s preferences among lotteries over the set of such pairs.
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• Ex: Consider variant of situation modeled by BoS, in which neither

player knows whether the other wants to go out with her. Specifically,
suppose player1 thinks that with probability ½ player2 wants to go out
with her, and with probability player2 wants to avoid her, and player2
thinks that with probability ⅔ player1 wants to go out with her, and
with probability ⅓ player1 wants to avoid her. Each player knows her
own preferences. Model this by introducing 4 states, one for each of
possible configurations of preferences.
• A set of players – pair of people
• A set of states – {yy, yn, ny, nn}
And for each player,
• A set of actions – {B, S}
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• A set of signals – player1 receives one of two signals y1 and n1; her
signal function τ1 satisfies τ1(yy) = τ1(yn)=y1 and τ1(ny) = τ1(nn)=n1.
player2 receives one of two signals y2 and n2; her signal function τ2
satisfies τ2(yy) = τ1(ny)=y2 and τ2(yn) = τ1(nn)=n2 .
• Beliefs: Player1 assigns probability ½ to each states yy and yn after
receiving signal y1 and probability ½ to each states ny and nn after
receiving signal n1. Player2 assigns probability ⅔ to state yy and
probability ⅓ to states ny after receiving signal y2, and probability ⅔ to
state yn and probability ⅓ to states nn after receiving signal n2.
• Payoffs: The payoffs ui(a, ω) of each player i for all possible action
pairs are given in slide 14.
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Ex: Player1 is unsure whether player2 prefers to go out with him or

prefers to avoid him, whereas player2 knows player1’s preferences.
Suppose player1 knows that with probability  ½, player2 wants to go out
with him and with remaining  ½ probability player2 wants to avoid him.
Model this as a Bayesian game.
• A set of players – pair of people
• A set of states – { meet/Interested, avoid/Uninterested}
And for each player,
• A set of actions – {B, S}
• A set of signals – player1 may receive a signal say z; her signal function
τ1 satisfies τ1(meet)= τ1(avoid)=z. Player2 receives one of two signals, say
m and v; her signal function τ2 satisfies τ2(meet)=m and τ2(avoid)=v
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• Beliefs: Player1 assigns probability ½ to each state after receiving

signal z. Player2 assigns probability 1 to the state meet after receiving
the signal m, and the probability 1 to the state avoid after receiving
the signal v.
• Payoffs: The payoffs ui(a, meet) of each player i for all possible action
pairs are given in left table and the payoffs ui(a, avoid) of each player i
is given in right table below.
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Bayesian Cournot’s Duopoly
Here firm1 is of single type and firm2 is of type Low(L) and High(H) and
probabilities P(Low)=½=P(High) with cost of production for firm2 of
type L and type H are ½c and c respectively.
Soln: Firm1 produces q1 , firm2 of type L produces qL and firm2 of type
H produces qH .
Payoff to each firm = price x quantity – cost of production
Price = a – Q, where Q is total quantity produced.
Cost of production= cq
∴ in general payoff to firm i =(a-(qi+qj))qi – ci qi
Payoff to firm2 of type L = a-(q1+qL) qL - ½c qL
Payoff to firm2 of type H= a-(q1+qH) qL - c qH
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Bayesian Cournot’s Duopoly

Find best response of firm2 of type L, we get
qL*= -------------①
Similarly find Now find best response of firm2 of type H, we get
qH*= -------------②
Payoff of firm1, corresponding to type L of firm2 is [a-(q1+qL)]q1-cq1
Payoff of firm1, corresponding to type H of firm2 is [a-(q1+qH)]q1-cq1
∴ average payoff of firm1 is ½ {[a-(q1+qL)]q1-cq1} + ½{[a-(q1+qH)]q1-cq1}
Now find best response of firm1 we get, q1*= ----③
Substituting ① and ② in ③ and simplifying we get,
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Bayesian Cournot’s Duopoly

q1* = -------------④
Substitute ④ in ①and ② we get, qL* = - and qH* = -
∴ Bayesian NE =(q1*, (qL* , qH*)) =(, ( - , - ))
= ( - , (- , - ))
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Bayesian Games with mixed strategies

• Consider the variant of the situation modeled by BoS, in which
neither player knows whether the other wants to go out with him
(or her). Specifically, suppose that Player H thinks that with
probability player W wants to go out with him, and with probability
player W wants avoid him, and Player W thinks that with probability ⅔
player H wants to go out with her, and with probability⅓ player H
wants avoid her. Find all Nash equilibria, when player 1 is of both
types and player 2 is of type 1.
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• Soln: Pay off tables are as below:

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Find mixed strategy NE when player1 is of both types and player2 is of I

type
Let α1I =(p1,1-p1) and α1U =(p2,1-p2) α2 =(q,1-q) be strategies of players.
And P1(I)= ⅔ and P1(U)= ⅓ P1-I and P2-I
H/W B S  
Payoff of player1 of type I to choosing B is ⅔
B (2,1) (0,0) p1

P1 (I) =
E1I(B, α2)= 2q+(1-q)0=2q S (0,0) (1,2) 1-p1

Payoff of player1 of type I to choosing S is   q 1-q

E1I(O, α2)= 0q+(1-q)1=1-q P1-U and P2-I

Player1 will be employ mixed strategy when H/W B S  

E1I(B, α2)= E1I(O, α2) ⇒ 2q=1-q ⇒ q= ⅓ p2

⅓
B (0,1) (2,0)

P1 (U) =
S (1,0) (0,2) 1-p2

⅓ ⅔
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∴ mixed strategy employed by player2 is (⅓, ⅔)

∴ payoff of player1 of type U for choosing B is E1U(B, α2)= ⅓ 0+ ⅔ 2 = 4/3
payoff of player1 of type U for choosing S is E1U(S, α2)= ⅓ 1+ ⅔ 0 = ⅓
Since E1U(B, α2)> E1U(S, α2) ⇒ p2=1 and 1-p2=0
For player1 of type U, choosing B is better than choosing S.
∴ p2=1 and 1-p2=0
Payoff of player2 choosing B is E2(B, (α1, α2))= ⅔(1 p1+0(1-p1))+ ⅓(1 p2+0(1-p2))=
⅔p1+ ⅓p2
Payoff of player2 choosing S is E2(S, (α1, α2))= ⅔(0 p1+2(1-p1))+ ⅓(0 p2+2(1-p2))=
4/3 – 4/3p1
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Since player2 employs mixed strategies payoffs to B and S must be

equal. That is E2(B, (α1, α2))= E2(S, (α1, α2)) ⇒ ⅔p1+ ⅓p2 =4/3 – 4/3p1
⇒ p1= ½
∴ mixed strategy of player1 of type I is (½, ½)
∴ mixed strategy BNE of game is (((½, ½),(1,0))(⅓, ⅔))
and (((1,0)(0,1)),(⅔, ⅓))
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• Similarly if u start with Player1 of type U, then proceeding to player1 of

type I, we get q= ⅔ , 1-q= ⅓ and p1= 1, 1-p1= 0.
P1-I and P2-I
Then proceeding to player2, H/W B S  

Payoff of player2 choosing B is E2(B, (α1, α2))= B (2,1) (0,0) p1

⅔

P1 (I) =
S (0,0) (1,2) 1-p1
⅔(1 p1+0(1-p1))+ ⅓(1 p2+0(1-p2))= ⅔p1+ ⅓p2
  ⅔ ⅓
Payoff of player2 choosing S is E2(S, (α1, α2))=
P1-U and P2-I
⅔(0 p1+2(1-p1))+ ⅓(0 p2+2(1-p2))= 4/3 – 4/3p1 H/W B S  

⅔p1+ ⅓p2= 4/3 – 4/3p1 ⅓

B (0,1) (2,0) p2

P1 (U) =
p2= 0 , 1-p2= 1 S (1,0) (0,2) 1-p2

Another mixed strategy BNE of game is q 1-q

(((1,0)(0, 1)),(⅔, ⅓))

 Auctions Go, change the world

• An auction is a method where many prospective buyers compete for an

opportunity to purchase an item. The buyers bid for the item, either
simultaneously or over an extended period of time. There are many types of 
auctions such as English auctions, Dutch auctions, First Price Sealed Bid auctions,
Vickrey auctions, etc.
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Sealed bid First price auction

Consider 2 player auction- Player P1 and P2. P1 and P2 submit their individual
bids b1 and b2 respectively for the object being auctioned and these bids are
sealed. ∴ each player does not know the bid of the other player. Player with
highest bid will win the auction and pays an amount equal to his bid to get
object being auctioned.
If b1≥b2, then P1 wins the auction, pays b1 and get object. P2 who has lost
auction does not pay anything.
Else if b2>b1, then P2 wins the auction, pays b2 and get object. P1 who has lost
auction does not pay anything.
Each player has a private valuation for the object. Valuation is what value the
bidder assigns to the object. P1’s valuation is v1 and P2’s valuation is v2. These
valuations are private ⇒  P1 does not know valuation v2 of P2 and vice versa.
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These valuations are distributed uniformly in the interval [0,1].

Fx(x)= 1 if 0≤x≤1
= 0 otherwise
Prob that x lying in [a, b]= 
There is an uncertainty in valuation of the other player, it is a Bayesian
game.
Aim is to analyze this game to find NE bidding strategy of each player.
We will show that the bidding strategy b1=½v1 and b2= ½v2 is NE.
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Show that the bidding strategy b1=½v1 and

b2= ½v2 is NE of first price sealed bid auction
Proof: we have to show that b1=½v1 and b2= ½v2 are best responses of
P1 and P2.
Let us assume that P2 is bidding with b2= ½v2 .
π(b1) denotes the payoff to player1 as a function of b1.
If P1 wins the auction ⇒ b1≥b2 Then his payoff = v1- b1
If P1 loses the auction ⇒ b1<b2 Then his payoff = 0 because he does not
pay anything, neither does he get the object.
∴ avg payoff to player is given as
P(win)x(v1- b1) + P(loses)x0 = P(win)x(v1- b1)
π(b ) = P(win)x(v - b ) --------------------①
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P(win)
For P1, b1≥b2 = ½v2 ⇒ b1≥ ½v2 ⇒ v2 ≤ 2b1
∵ valuation v2 lies in [0,1], we have v2 in [0,2b1]
∴ probability v2 in [0,2b1] = = 2b1-0=2b1
∴P(win) for P1= 2b1
Substituting in ①
π(b1) = 2b1x(v1- b1) = 2b1v1-2 b12
We need to maximize π(b1)
= 2v1 – 4b1 = 0 ⇒ v1=2b1 ⇒ b1*= ½v1
If b2= ½v2, then b1*= ½v1 is the best response of P1. Similarly, if b1=½v1,
then b2= ½v2is the best response of P2.
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Expected revenue of first price auction

Since player with max bid wins the auction and pays an amount equal
to bid amount, revenue to auctioneer = max{b1,b2}
WKT NE is b1=½v1 and b2= ½v2
∴ revenue = max{b1,b2}= ½ max{v1, v2}
v1 & v2 are independent valuations uniformly distributed in [0,1]. Then
what is the probability that max{v1, v2} lies in infinitesimal interval
[v, v+dv]?
Scenario1: v1 is max. ⇒ v1lies in [v, v+dv] and
v2 lies in [0,v].
Probability= P(v1 ϵ [v, v+dv]) x P(v2 ϵ [0,v])
= dv x v = v dv
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Scenario 2: v2is max. ⇒ v2 lies in [v, v+dv] and v1lies in [0,v].

Probability= P(v2ϵ [v, v+dv]) x P(v1 ϵ [0,v])
= dv x v = v dv
∴ net probability that max{v1, v2} lies in [v, v+dv] = v dv+ vdv = 2v dv
Average revenue corresponding to max{v1, v2} ϵ [v, v+dv] = ½ v x Prob =
½ v 2v dv = v2dv
Net average revenue to the auctioneer =
∴ expected revenue to auctioneer =
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Sealed bid Second price auction

Consider 2 player auction- Player P1 and P2. P1 and P2 submit their individual
bids b1 and b2 respectively for the object being auctioned and these bids are
sealed. ∴ each player does not know the bid of the other player. Player with
highest bid will win the auction and pays an amount equal to second highest
bid to get object being auctioned.
If b1≥b2, then P1 wins the auction, pays b2 and get object. P2 who has lost
auction does not pay anything.
Else if b2>b1, then P2 wins the auction, pays b1 and get object. P1 who has lost
auction does not pay anything.
Each player has a private valuation for the object. Valuation is what value the
bidder assigns to the object. P1’s valuation is v1 and P2’s valuation is v2. These
valuations are private ⇒  P1 does not know valuation v2 of P2 and vice versa.
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Show that the bidding strategy b1=v1 and Go, change the world

b2= v2 is NE of second price sealed bid

auction
Proof: we have to show that b1=v1 and b2= v2 are best responses of P1
and P2.
Let us assume that P2 is bidding with b2= v2 .
π(b1) denotes the payoff to player1 as a function of b1.
To find best response of P1
Case 1: Let v1≥ v2
Player2 is bidding with b2= v2
If v1≥v2 then P1 wins the auction and pays the second highest bid
b2 =v2
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On the other hand if he bids b≤ b2=v2 then P1 looses the auction & his
net payoff = 0. ∴ we see that any bid b1 ≥v2 is a best response. In
particular b1=v1 is a best response.
Case 2: Let v1≤ v2 and P2 bids b2=v2
If P1 bids b1 ≥b2 = v2 then he wins & pays b2=v2.
Net payoff = v1- b2=v1-v2 <0
On the other hand, if he bids any b1<b2=v2 then he looses the auction &
his payoff = 0
∴ any bid b1<b2 is a best response. In particular b1=v1 is a best response
since v1≤ v2 .
∴ if P2 is bidding with b2=v2, then b1=v1 is a best response for P1.
Similarly if P1 is bidding with b1=v1, then b2=v2 is a best response for P2.
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Expected revenue of second price auction

Since player with max bid wins the auction and pays an amount equal to
other player’s bid amount, revenue to auctioneer = min{b1,b2}
WKT NE is b1=v1 and b2= v2
∴ revenue = min{b1,b2}= min{v1, v2}
v1 & v2 are independent valuations uniformly distributed in [0,1]. Then
what is the probability that min{v1, v2} lies in infinitesimal interval
[v, v+dv]?
Case 1: v1≤ v2
v1lies in [v, v+dv] and v2 lies in [v+dv, 1].
Probability= P(v1 ϵ [v, v+dv]) x P(v2 ϵ [v+dv, 1])
= dv x (1-v-dv) = (1- v) dv ∵ dv is small
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Case 2: v2< v1⇒ v2 lies in [v, v+dv] and v1lies in [v+dv, 1].
Probability= P(v2ϵ [v, v+dv]) x P(v1 ϵ [v+dv, 1])
= dv x (1-v-dv) = (1- v) dv ∵ dv is small
∴ net probability that min{v1, v2} lies in [v, v+dv] = (1-v) dv+ (1-v) dv =
2(1-v) dv
Revenue to auctioneer = min{v1, v2}
Since min lies in [v, v+dv], revenue = v
Expected revenue = Pro x v = 2(1-v) v dv
Net average revenue to the auctioneer =
2 = 2[½ – ]=
∴ expected revenue to auctioneer =
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Sealed bid All pay auction

Consider 2 player auction- Player P1 and P2. P1 and P2 submit their individual
bids b1 and b2 respectively for the object being auctioned and these bids are
sealed. ∴ each player does not know the bid of the other player. Player with
highest bid will win the auction and both players pays an amount equal to
his bid.
If b1≥b2, then P1 wins the auction, pays b1 and get object. P2 who has lost
auction also pay b2.
Else if b2>b1, then P2 wins the auction, pays b2 and get object. P1 who has lost
auction also pay b1.
Each player has a private valuation for the object. Valuation is what value the
bidder assigns to the object. P1’s valuation is v1 and P2’s valuation is v2. These
valuations are private ⇒  P1 does not know valuation v2 of P2 and vice versa.
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These valuations are distributed uniformly in the interval [0,1].

Fx(x)= 1 if 0≤x≤1
= 0 otherwise
Prob that x lying in [a, b]= 
There is an uncertainty in valuation of the other player, it is a Bayesian
game.
Aim is to analyze this game to find NE bidding strategy of each player.
We will show that the bidding strategy b1=½v12 and b2= ½v22 is NE.
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Show that the bidding strategy b1=½v12 and

b2= ½v2 is NE of all pay auction
2

Proof: We have to show that b1=½v12 and b2= ½v22 are best responses of
P1 and P2.
Let us assume that P2 is bidding with b2= ½v22 and player1 bids b.
π(b) denotes the payoff to player1 as a function of b.
If P1 wins the auction ⇒ b≥b2 Then his payoff = v1- b
If P1 loses the auction ⇒ b<b2 Then his payoff = -b because he pays b
∴ avg payoff to player is given as
P(win)x(v1- b) + P(loses)x –b --------------------①
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Expected revenue of all pay auction

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Extensive games with imperfect information

• Here players play their actions sequentially
• When choosing an action, player may not be informed of the other
player’s previous actions.
To describe Extensive games with imperfect information, a specification
of each player’s information about the history at every point at which
she moves is needed. Let Hi denote set of histories after which player i
moves. Player i’s information is specified by partitioning Hi into a
collection of information sets. This collection is called player i’s
information partition. When making her decision, player i is informed of
the information set that has occurred but not of which history within
that she has occurred.
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Ex: Suppose player i moves after histories C,D,E then Hi={C,D,E}

If player i is precisely informed about history, then her information
partition consists of 3 information sets,{C},{D},{E}.
If player i is not informed anything about which history has occurred,
then her information partition consists of single information set,
{C,D,E}.
If player i is informed only that history is C or that is either D or E, then
her information partition consists of two information sets {C}, {D,E}.
Two histories h and h’ will be in same information set only if A(h)=A(h’).
If information set that contains h and h’ is Ii, the common values of A(h)
and A(h’) is denoted A(Ii). That is A(Ii) is the set of actions available to
player I at her information set Ii.
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Defn: An Extensive games with imperfect information and chance moves

consists of
• Set of players
• A set of terminal histories having property that no sequence is a proper sub
history of any other sequence.
• A player function that assigns either a player or “chance” to every sequence
that is a proper sub history of some terminal history.
• A function that assigns to each history that the player function assigns to
chance a probability distribution over the actions available after that history,
with the property that each such probability distribution is independent of
every other distribution.
• For each player, an information partition
• For each player, preferences over the set of histories over terminal histories.
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Ex: 1. BoS
Here players choose their actions sequentially and the second mover is
not informed of the choice made by first mover.
Model:
Players- 1,2
Terminal histories –(B,B),(B,S),(S,B),(S,S)
Player function – P(Φ)=1, P(B)=P(S)=2
Chance moves: None
Information partition: Player1’s information partition contains a single
information set Φ; player2’s information partition contains a single
information set {B,S}
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• Preferences: U1(B,B) >U1(S,S) > U1(B,S) = U1(S,B)

U2(S,S) > U2(B,B) >U2(B,S) = U2(S,B)
The dotted lines represent the fact that when player2 is moving, he is
not informed whether history is B or S. Therefore B and S are in same
information set.
2. Card game
Each of two player begins by putting a dollar in the pot. Player1 is then
dealt a card that is equally likely to be High or Low; she observes her
card, but player2 does not. Player1 may see or raise. If she sees, she
shows her card to player2. If player1’s card is High, she takes the money
in the pot and if it is Low, player2 takes money in the pot; in both cases
game ends. If player1 raises, she adds a dollar to the pot and player2
chooses whether to pass or to meet.
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If player2 passes, then player1 takes the money in the pot. If player2
meets, she adds a dollar
to the pot and player1 shows
her card. If card is High, player1
takes the money; if it is low,
player2 takes money.
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3. Entry Game
Incumbent faces the possibility of entry by a challenger. The challenger
has 3 choices: it may stay out, prepare itself for combat and enter,
enter without making preparations. Preparation is costly but reduces
loss from fight. Incumbent may fight or accommodate to entry. A fight
is less costly to incumbent if the entrant is unprepared; but regardless
of the entrant readiness, the incumbent prefers to accommodate than
to fight. Incumbent observes whether challenger enters but not
whether an entrant is prepared.
Here player1(challenger)’s preferences are given by,
u1(ur, Acc)>u1(r, Acc)>u1(Out)>u1(r, fight)>u1(ur, fight)
Here player2(Incumbent)’s preferences are given by,
u2(Out)>u2(r, Acc)=u2(ur,Acc)>u2(ur, fight)>u2(r, fight)
Go, change the world
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Strategies
• Strategy for a player in a general extensive game specifies an action the
player takes whenever it is her turn to move.
Defn(in extensive game): A strategy(pure) of player i in an extensive game
is a function that assigns to each of i’s information sets Ii an action in A(Ii)
(set of actions available to player i at the information set Ii)
In BoS, each player ha a single information set, at which two actions B and
S are available. Thus each player has two strategies B and S.
In card game, player1 has two information sets, at each of which she has
two actions, raise and see. ∴ she has 4 strategies (raise, raise), (raise,
see), (see, raise) (see, see). Player2 has one information set, at which she
has two actions, meet and pass; thus having two strategies, meet and
pass.
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Mixed strategy in extensive game:

Defn: A mixed strategy of a player in an extensive game is a probability
distribution over the player’s pure strategies.
Problems:
1. Card game
Here player1 has 2 information partitions
{H} {L} with actions {S,R}
Player2 has 1 information partition
{HR, LR} with actions{P,M}
Strategies of player1 are {SS,SR,RS,RR}
Strategies of player2 are {P,M}
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Payoff ([SS],[P])= ½(1,-1)+ ½(-1,1) = (0,0)

Payoff ([SS],[M])= ½(1,-1)+ ½(-1,1) = (0,0)
Payoff ([SR],[P])= ½(1,-1)+ ½(1,-1) = (1,-1)
Payoff ([SR],[M])= ½(1,-1)+ ½(-2,2) = (-½,½)
Payoff ([RS],[P])= ½(1,-1)+ ½(-1,1) = (0,0)
Payoff ([RS],[M])= ½(2,-2) + ½ (-1,1)= (½,-½)
1/2 P M
Payoff ([RR],[P])= ½(1,-1)+ ½(1,-1) = (1,-1)
SS (0,0') (0,0')
Payoff ([RR],[M])= ½(2,-2) + ½ (-2,2)= (0,0)
SR (1*,-1) (-½,½')
∴ No pure strategy NE.
RS (0,0') (½*,-½)

RR (1*,-1) (0,0')
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2. Find NE of following extensive game.

Soln:
Here player1 has single information partition set ɸ
with actions {a, b}
player2 also has single information partition set
{a, b} with actions {c, d}
∴ strategies of player1 are {a, b}
strategies of player1 are {c, d}
∴ No pure strategy NE.
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3. Find NE of following extensive game.

Soln:
Here player1 has single information partition
set ɸ with actions {L, M, R}
player2 also has single information partition set
{M, R} with actions {a, r}
∴ strategies of player1 are {L, M, R} 1/2 a r

strategies of player2 are {a, r} L (2,2') (2*,2')

∴ Pure strategy NE are {(L, r),(M, a)} M (3*,1') (0,0)

R (0,2') (1,1)
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4. For the following Entry game, convert to strategic form game and find
NE.
Soln:
Here player1 has single information partition
set ɸ with actions {R, U, Out}
player2 also has single information
partition set {R, U} with actions
{Acc, Fight} 1/2 Acc Fight

∴ strategies of player1 are {R, U, Out} R (3,3') (1,1)

strategies of player2 are {Acc, Fight} U (4*,3') (0,2)

∴ Pure strategy NE are {(U, Acc),(Out, Fight)} Out (2,4') (2*,4')

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5. For the variant of Entry game in which incumbent prefers to fight than
to accommodate an unprepared entrant,
convert to strategic form game and find NE.
Soln:
Here player1 has single information partition
set ɸ with actions {R, U, Out}
player2 also has single information
partition set {R, U} with actions
{Acc, Fight}
1/2 Acc Fight
∴ strategies of player1 are {R, U, Out}
R (3,2') (1,1)
strategies of player2 are {Acc, Fight}
U (4*,2) (0,3')
∴ Pure strategy NE is {(Out, Fight)}
Out (2,4') (2*,4')