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Sequential Games & Backwards

Induction
Solving a sequential game is easy. We begin with decisions that
lead only to terminal nodes of the game, choose the action that
maximizes the payoff of the player choosing at that node, and then
work backwards through the earlier nodes of the game.
Each player can predict what other players will do at subsequent
nodes, so he/she can predict the exact consequences of his/her
possible moves before the move. For earlier nodes, we substitute
the eventual outcome that will be reached for each move using the
anticipated future moves of the other players. This is called
backwards induction.

Lucie): Suppose Lucie’s top choice is Charlie Brown falling down. Then we can solve the sequential game played by them using backwards induction: .Example (Charlie Brown vs. Charlie Brown has the opposite ranking. next choice is nothing happening. and last choice is Charlie Brown kicking the ball.

sCharlie Brown falls down Pull the ball L Accept CB @ @ Let him@kick @ @sCharlie Brown kicks the ball @ @ Reject @ @ @sNothing happens .

Example: A 3 L 2 U 1 @ @ @ D@ @ @ 2 s (2.3.3.2) @ @ B @s (3.2.1) @ R@@s (2.0) @ z@@s (1.1) .1) @ @s (0.0.2.2) @ r@@ X 3 W 1 @ @ Y@ 1 s (1.1.3.2) Z@ w s (2.3.2) l s (1.

2) s S 1 C (4.12) s S 2 C s (24.6) s S 2 C (12.1) s S 1 C (2.4) s S 1 C (8.Example (3-Level Centipede): (3.8) .3) s S 2 C (6.

D. . The procedure is such that • member 1 vetoes a candidate. The surviving candidate is elected.B.C.Example: Three members of a committee should choose among four candidates A. member 3 vetoes a third candidate. and • observing members 1 and 2. • observing this member 2 vetoes another. The preferences of the members (from best to worst) are as follows: Member 1: C B D A Member 2: B C A D Member 3: A B C D Let’s find the elected candidate using backwards induction.

(rD ( C ( (  3 hhh  hrC  B D  (rD  ( B ( C  ( 2 PP 3 hhh D hrB PP (rC ( B D PP ( P3( hhh C hrB (rD C(( ( h  3 hh A  hrC  A D  (rD  A((  ( h 3 hh  2 PPPC hrA  D  PP  B (rC A(( D P P3(  h h hr  A C h  1 H J HH (rD ( B ( (  3 hhh J HH  hrB  A C D  J HH  (rD  ( A (  ( H J 2 PP B 3 hhh D hrA PP J (rB ( A D PP ( P3( DJ hhh B hrA J J (rC B(( J ( h  3 hh  hrB  A J C   (rC  A(( J ( J2 h 3 hh PP B C hrA PP (rB ( C PP P3h (A( hh B hrA .

however each face a small cost in voter resentment c > 0.-c) N PPP ( 3 hhh n hr(0.b.b-c.0.0.b-c.b-c)  Y N PP (  3 hhh hr(-c. All three want the pay raise. The benefit for the raise is b > c.b)  3 hnhh  Y     2 PPP  PP  y(( (r(b-c.0. They vote in the order 1-2-3.0) . What is the outcome obtained by backwards induction? y(( (r(b-c.b-c.b-c) ( hr(b-c.b-c) ( H  3 hnhh hr(0.Example (Voting for a Pay Raise): Three legislators are voting on whether to give themselves a pay raise.-c.0)  n   1H HH y(( (r(b.0)  Y N HH  HH  2 PP PP y(( (r(0.

2) Example (Tricky!): 3 L 2 U 1 @ @ @ D@ @ @ 2 @ @ B @s (3.0) 1 @ z@@s (1.1) 1 @ @s (0.3.3.3.2.1) .1.2.0.2.1) @ @ R @s (2.2) l s (3.2) Z@ w s (2.A s (2.2) @ r@@ X 3 @ Y@@ W s (1.

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