1. News and Notes 3/18 Two readings in game theory assigned Short lecture today due to 10 AM fire drill HW 2 handed back today, midterm handed back Tuesday No MK OHs today

2. Introduction to Game Theory Networked Life CSE 112 Spring 2004 Prof. Michael Kearns

3. Game Theory A mathematical theory designed to model: –how rational individuals should behave –when individual outcomes are determined by collective behavior –strategic behavior Rational usually means selfish --- but not always Rich history, flourished during the Cold War Traditionally viewed as a subject of economics Subsequently applied by many fields –evolutionary biology, social psychology Perhaps the branch of pure math most widely examined outside of the “hard” sciences

4. Prisoner’s Dilemma Cooperate = deny the crime; defect = confess guilt of both Claim that (defect, defect) is an equilibrium: –if I am definitely going to defect, you choose between -10 and -8 –so you will also defect –same logic applies to me Note unilateral nature of equilibrium: –I fix a behavior or strategy for you, then choose my best response Claim: no other pair of strategies is an equilibrium But we would have been so much better off cooperating… Looking ahead: what do people actually do?actually do? cooperatedefect cooperate-1, -1-10, -0.25 defect-0.25, -10-8, -8

5. Penny Matching What are the equilibrium strategies now? There are none! –if I play heads then you will of course play tails –but that makes me want to play tails too –which in turn makes you want to play heads –etc. etc. etc. But what if we can each (privately) flip coins? –the strategy pair (1/2, 1/2) is an equilibrium Such randomized strategies are called mixed strategies headstails heads1, 00, 1 tails0, 11, 0

6. The World According to Nash If > 2 actions, mixed strategy is a distribution on them –e.g. 1/3 rock, 1/3 paper, 1/3 scissors Might also have > 2 players A general mixed strategy is a vector P = (P[1], P[2],… P[n]): –P[i] is a distribution over the actions for player i –assume everyone knows all the distributions P[j] –but the “coin flips” used to select from P[i] known only to i P is an equilibrium if: –for every i, P[i] is a best response to all the other P[j] Nash 1950: every game has a mixed strategy equilibrium –no matter how many rows and columns there are –in fact, no matter how many players there are Thus known as a Nash equilibrium A major reason for Nash’s Nobel Prize in economics

7. Facts about Nash Equilibria While there is always at least one, there might be many –zero-sum games: all equilibria give the same payoffs to each player –non zero-sum: different equilibria may give different payoffs! Equilibrium is a static notion –does not suggest how players might learn to play equilibrium –does not suggest how we might choose among multiple equilibria Nash equilibrium is a strictly competitive notion –players cannot have “pre-play communication” –bargains, side payments, threats, collusions, etc. not allowed Computing Nash equilibria for large games is difficult

8. Hawks and Doves Two parties confront over a resource of value V May simply display aggression, or actually have a fight Cost of losing a fight: C > V Assume parties are equally likely to win or lose There are three Nash equilibria: –(hawk, dove), (dove, hawk) and (V/C hawk, V/C hawk) Alternative interpretation for C >> V: –the Kansas Cornfield Intersection game (a.k.a. Chicken) –hawk = speed through intersection, dove = yield hawkdove hawk(V-C)/2, (V-C)/2V, 0 dove0, VV/2, V/2

9. Board Games and Game Theory What does game theory say about richer games? –tic-tac-toe, checkers, backgammon, go,… –these are all games of complete information with state –incomplete information: poker Imagine an absurdly large “game matrix” for chess: –each row/column represents a complete strategy for playing –strategy = a mapping from every possible board configuration to the next move for the player –number of rows or columns is huge --- but finite! Thus, a Nash equilibrium for chess exists! –it’s just completely infeasible to compute it –note: can often “push” randomization “inside” the strategy

10. Repeated Games Nash equilibrium analyzes “one-shot” games –we meet for the first time, play once, and separate forever Natural extension: repeated games –we play the same game (e.g. Prisoner’s Dilemma) many times in a row –like a board game, where the “state” is the history of play so far –strategy = a mapping from the history so far to your next move So repeated games also have a Nash equilibrium –may be different from the one-shot equilibrium! –depends on the game and details of the setting We are approaching learning in games –natural to adapt your behavior (strategy) based on play so far

11. Repeated Prisoner’s Dilemma If we play for R rounds, and both know R: –(always defect, always defect) still the only Nash equilibrium –argue by backwards induction If uncertainty about R is introduced (e.g. random stopping): –cooperation and tit-for-tat can become equilibria If computational restrictions are placed on our strategies: –as long as we’re too feeble to count, cooperative equilibria arise –formally: < log(R) states in a finite automaton –a form of bounded rationality

12. The Folk Theorem Take any one-shot, two-player game Suppose that (u,v) are the (expected) payoffs under some mixed strategy pair (P[1],P[2]) for the two players –(P[1], P[2]) not necessarily a Nash equilibrium –but (u,v) gives better payoffs than the security levels security level: what a player can get no matter what the other does –example: sec. level is (-8, -8) in Prisoner’s Dilemma; (-1,-1) is better Then there is always a Nash equilibrium for the infinite repeated game giving payoffs (u,v) –makes use of the concept of threats Partial resolution of the difficulties of Nash equilibria…

13. Correlated Equilibrium In a Nash equilibrium (P[1],P[2]): –player 2 “knows” the distribution P[1] –but doesn’t know the “random bits” player 1 uses to select from P[1] –equilibrium relies on private randomization Suppose now we also allow public (shared) randomization –so strategy might say things like “if private bits = 100110 and shared bits = 110100110, then play hawk” Then two strategies are in correlated equilibrium if: –knowing only your strategy and the shared bits, my strategy is a best response, and vice-versa Nash is the special case of no shared bits

14. Hawks and Doves Revisited There are three Nash equilibria: –(hawk, dove), (dove, hawk) and (V/C hawk, V/C hawk) Alternative interpretation for C >> V: –the Kansas Cornfield Intersection game (a.k.a. Chicken) –hawk = speed through intersection, dove = yield Correlated equilibrium: the traffic signal –if the shared bit is green to me, I am playing hawk –if the shared bit is red to me, I will play dove –you play the symmetric strategy –splits waiting time between us --- a different outcome than Nash hawkdove hawk(V-C)/2, (V-C)/2V, 0 dove0, VV/2, V/2

15. Correlated Equilibrium Facts Always exists –all Nash equilibria are correlated equilibria –all probability distributions over Nash equilibria are C.E. –and some more things are C.E. as well –a broader concept than Nash Technical advantages of correlated equilibria: –often easier to compute than Nash Conceptual advantages: –correlated behavior is a fact of the real world –model a limited form of cooperation –more general cooperation becomes extremely complex and messy Breaking news (late 90s – now): –CE is the natural convergence notion for “rational” learning in games!

16. A More Complex Setting: Bargaining x = payoff to player 1 y = payoff to player 2 possible outcomes Convex set S of possible payoffs Players must bargain to settle on a solution (x,y) in S What “should” the solution be? Want a general answer A function F(S) mapping S to a solution (x,y) in S Nash’s axioms for F: –choose on red boundary (Pareto) –scale invariance –symmetry in the role of x and y –“independence of irrelevant alternatives”: if green solution was contained in smaller red set, must also be red solution

17. Nash’s Bargaining Solution x = payoff to player 1 y = payoff to player 2 possible outcomes There’s only one choice of F that satisfies all these axioms And the winner is: –choose (x,y) on the boundary of S that maximizes xy Example: rich-poor bargaining Cash 1 (rich) Cash 2 (poor) Utility 1 (rich) Utility 2 (poor) U1 x U2 01000.001.000.000 25750.250.980.245 50 0.500.900.450 75250.750.730.548 10001.000.000.000

18. Social Choice Theory Suppose we must collectively choose between alternatives –e.g. Bush, Kerry, Nader, Sharpton,… Under current voting scheme, “gamesmanship” encouraged –e.g. prefer Nader to Gore, but Gore is more “electable” –not a “truth revealing” mechanism An idealized voting scheme –we each submit a complete ordering on the candidates –e.g. Sharpton > Bush > Nader > Kerry –then combine the orderings to choose a global ordering (outcome) –we would like the outcome to be “fair” and “reasonable” What do “fair” and “reasonable” mean? Again take an axiomatic approach

19. Social Choice Axioms Let’s call F the mapping from preferences to outcome Suppose for some preferences, x > y in the global outcome –then if we move x up in all preferences, F still has x > y Suppose we look at some subset S of alternatives –e.g. S = {Kerry, Sharpton} –suppose we modify preferences only outside of S –F’s ranking of S should remain unchanged (irrelevant alternatives) Always some way of making F output x > y, for any x,y –otherwise F is ignoring the preferences! Non-dictatorship: –no single individual determines output of F

20. Arrow’s Impossibility Theorem There is no mapping F satisfying all four axioms! Long history of alternate axioms, (im)possibility research A mathematical demonstration of the difficulty of selecting collective outcomes from individual preferences

21. Next Up Have so far examined simple games between two players Strategic interaction on the smallest “network”: –two vertices with a single link between them –much richer interaction than just info transmission, messages, etc. Classical game theory generalizes to many players –e.g. Nash equilibria always exist in multi-player matrix games –but this fails to capture/exploit/examine structured interaction We need specific models for networked games: –games on networks: local interaction –shared information: economies, financial markets –voting systems –evolutionary games