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EC941 - Game Theory: Prof. Francesco Squintani Email: F.squintani@warwick - Ac.uk
EC941 - Game Theory: Prof. Francesco Squintani Email: F.squintani@warwick - Ac.uk
Lecture 7
Prof. Francesco Squintani
Email: [email protected]
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Structure of the Lecture
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Repeated Games
Repeated games are a special class of interactions,
represented as extensive form games.
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Definition Let G = (N, A, u) be a strategic game. Let T
be finite or infinite. The T-repeated game of G for the
discount factor δ is the extensive game in which:
the set of players is N
the set of terminal histories is the set of infinite
sequences (a1, a2, . . .) of action profiles in G
the player function assigns the set of all players to
every proper sub-history of every terminal history
the set of actions of player i after any history is A
i
each player i evaluates each terminal history (a ,
1
a2, . . .) according to its discounted average
(1 − d) ∑Tt=1 d t−1 ui (at).
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Repeated Prisoner Dilemma
Suppose that the following game is infinitely repeated
with discount factor d.
C D
C
2, 2 0, 3
D
3, 0 1, 1
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Strategies
A player’s strategy in an extensive game specifies her
action after all possible histories after which it is her
turn to move.
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Grim Trigger Strategy
Consider the repeated prisoner’s dilemma.
The strategy prescribes that the player initially
cooperates, and continues to do so if both players
cooperated at all previous times.
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The automaton of the Grim Trigger Strategy is as
follows:
There are two states: C in which C is chosen, and D,
in which D is chosen.
The initial state is C.
(C,C) (C,D)
* C (D,C)
D
(D,D)
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Tit for Tat
The player initially cooperates.
At subsequent rounds, she plays the strategy played
by the opponent at the previous round.
si (a1, . . . , aT) = C if aTj = C or T=1.
si (a1, . . . , aT) = D if aTj = D
( . ,D)
( . ,C)
* C D
( . ,C)
( . ,D)
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Grim Trigger Nash Equilibrium
Suppose that player j adopt the grim trigger strategy.
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Tit for Tat Nash Equilibrium
Suppose that player j adopts the tit for tat strategy.
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Nash Folk Theorem
in the Prisoner Dilemma
Definition The set of feasible payoff profiles of a
strategic game is the set of all weighted averages of
payoff profiles in the game.
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Nash Folk Theorem
Consider a one-shot game. Suppose that each player i
can guarantee herself a “minimum” payoff mi.
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For the Prisoner’s Dilemma, the minimum payoff of
player i supported by a Nash equilibrium is ui(D, D).
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For any collection a−i of the other players’ mixed
actions, player i’s highest possible payoff is
max ui (ai , a−i).
{ai ∈ Ai}
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Theorem (Nash Folk Theorem). Let G be a strategic
game. Let w be a feasible payoff profile of G for which
each player’s
payoff exceeds her minmax payoff. Then, for all e > 0,
there exists
δ < 1 such that if the discount factor exceeds δ, then the
infinitely repeated game of G has a Nash equilibrium
whose
discounted average payoff profile w’ satisfies |w’ − w| <
e.
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We now show that the profile s is a Nash equilibrium.
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Subgame Perfect Equilibrium
Theorem (One-Shot Deviation Property of subgame
perfect equilibria of infinitely repeated games)
A strategy profile in an infinitely repeated game is a
subgame perfect equilibrium if and only if no player
can gain by changing her action after any history,
given both the strategies of the other players and the
remainder of her own strategy.
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The One-Shot Deviation Principle is deceptively simple.
Its application is often not straightforward.
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Grim Trigger SPE
Suppose that both players adopt the grim trigger
strategy.
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SPE Folk Theorem
Theorem (Simplified Subgame Perfect Folk Theorem
for
Two-Player Games) Let G be a two-player strategic
game. Let w
be a feasible payoff profile of G for which each player’s
payoff exceeds
her (pure-strategy) minmax payoff. Then for all e > 0
there exists
δ < 1 such that if the discount factor exceeds δ then the
infinitely
repeated game of G has a subgame perfect equilibrium
whose
discounted average payoff profile w satisfies|w’ − w| < e
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Take an outcome a such that both players’ discounted
payoffs exceed their pure-strategy minmax payoffs.
Note that ui(p) < mi, her minmax payoff, and ui(a) > mi.
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If she deviates from si, she obtains at most her minmax
payoff in the period of her deviation, then ui(p) for k
periods, then ui(a) in the future.
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Prisoner’s Dilemma
The following game is repeated for T periods.
C D
C
2, 2 0, 3
D
3, 0 1, 1
Proceeding by backward induction, in the last period,
the unique Nash equilibrium is (D,D).
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Because in the last period players play (D,D)
regardless of the previous play, in the second to last
period future payoffs do not depend on current play.
It is as if players were playing the following game.
C D
C
2, 2 0, 3
D
3, 0 1, 1
The unique Nash Equilibrium is (D,D).
Proceeding by backward induction, the unique
subgame-perfect equilibrium is (D,D) in every period.
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Expanded Prisoner’s Dilemma
The following game is repeated for T periods.
C D E
C
2, 2 0, 3 -2,-2
D
3, 0 1, 1 -2,-2
E
-2,-2 -2,-2 -1,-1
There are 2 Nash Equilibria: (D, D) and (E,E).
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Expanded Prisoner’s Dilemma
In period T, a Nash Equilibrium is played, either (D,
D), with payoffs (1, 1), or (E, E), with payoffs (-1, -1).
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Summary of the Lecture
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Preview of the Next Lecture
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