Games of Incomplete Information

Example: Tinder BoS

• Recall Battle of the sexes game which was a complete information pure
coordination game.
• Both parties want to meet, but they have different preferences on Movie
and Football.
Player 2
Football Movie
Player 1
Football 2, 1 0, 0
Movie 0, 0 1, 2

• In this game there are two pure strategy equilibria (one of them better for
player 1 and the other one better for player 2), and a mixed strategy
equilibrium.
• Now imagine that player 1 does not know whether player 2 wishes to meet
or wishes to avoid player 1. Therefore, this is a situation of incomplete
information: also sometimes called asymmetric information.
 Games of Incomplete Information
• Until now, in all the games we have seen, all the elements of the game are
known by all players.
… Strategies (actions).
… Order of play.
… Payoff function.
• This means that, when we define a game, all players know which game
they are playing.
… This is called common knowledge. This means that, once a game is defined, it is common
knowledge.
• In many game theoretic situations, one agent is unsure about the payoffs
or preferences of others.
… This means that some players have private information that is not known by
other players.
… That is, games of incomplete information, where payoffs are not common
knowledge.
• The private information over some of the other elements may also be
modelled as a case of private information over payoffs.
 Bayesian Games

• Incomplete information introduces uncertainty about the game being

played.
• The idea is to convert a game of incomplete information into a game of
imperfect information
… which is known as a Bayesian game.
• Incomplete Information may prevail in both Simultaneous and
Sequential Games.
• A Bayesian game modifies a standard game by having an initial stage at
which Nature determines the private information held by players.
… Represented in the form of a tree.
… Bayesian games in extensive form
 Examples of Bayesian games

• Bargaining (how much the other party is willing to pay is generally

unknown to you)
• Auctions (how much should you bid for an object that you want,
knowing that others will also compete against you?)
• Market competition (firms generally do not know the exact cost of
their competitors)
• Signaling games (how should you infer the information of others from
the signals they send)
• Private contributions to the provision of a public good without
knowing other people’s costs or valuations.
• Battle of the sexes where one player does not know if her companion
prefers to be left alone or not.
• Prisoners’ dilemma not knowing if the other player has altruistic
preferences.
 Example: Tinder BoS
• Player 1 is unsure whether Player 2 wants to go out with him or avoid
him and thinks that these two possibilities are equally likely. But Player 2
knows Player 1’s preferences.
… We represent this by thinking of player 2 having two different types, one type that
wishes to meet player 1 and the other wishes to avoid him and these two types have
probability ½ each.
• Player 1 thinks that with probability 0.5 she is Type I and playing the
game on the left and with probability 0.5 she is Type II and playing the
game on the right.

Type I P2 Type II P2
p = 0.5 Football Movie p = 0.5 Football Movie

Football 2, 1 0, 0 Football 2, 0 0, 2
P1 P1
Movie 0, 0 1, 2 Movie 0, 1 1, 0

Crucially, P2 knows which game it is (she knows the state of the world), but P1 does not.
 Extensive-Form Representation of Bayesian Games

• Add a player Nature who has a unique strategy of

randomizing in a commonly known way.
Nature
Wishes to Meet Wishes to Avoid
p = 0.5 p = 0.5
1

F M F M
2 2

F M F M F M F M

(2, 1) (0, 0) (0, 0) (1, 2) (2, 0) (0, 2) (0, 1) (1, 0)

Extensive-Form Representation of Bayesian Games
Nature
Wishes to Meet Wishes to Avoid
p = 0.5 p = 0.5

F M F M
2 2

F M F M F M F M

(2, 1) (0, 0) (0, 0) (1, 2) (2, 0) (0, 2) (0, 1) (1, 0)

• Player 2 knows her type after nature has played

• However Player 1 only has “Beliefs” about Player 2’s types
… Type I probability = 0.5
… Type II probability = 0.5
• Player 1 chooses his strategies in line with these beliefs
Extensive-Form Representation of Bayesian Games
Nature
Wishes to Meet Wishes to Avoid
p = 0.5 p = 0.5

F M F M
2 2

F M F M F M F M

(2, 1) (0, 0) (0, 0) (1, 2) (2, 0) (0, 2) (0, 1) (1, 0)

• How many subgames are there?

… One
• How many information sets does each player has?
… One per Type
• What are the Strategies?
… Player 1: F, M
… Player 2: FF, FM, MF, MM
 Bayesian Nash Equilibrium

• BNE is a straightforward extension of NE

… Each type of player chooses a strategy that maximizes expected utility
given the actions of all types of the other player and that player’s
beliefs about other’s types
… P1 will try to maximize his expected payoff knowing P2 may be of T1
with p = 0.5 and T2 with p = 0.5
… P2 will try to maximize her payoff for each of her types

• A Bayesian Nash equilibrium is a triple of strategies (say

{F,FM} or {M,FF} or {F,FM} etc. ) one for P1 and one for each
type of P2:
… P1’s strategy is optimal, given the strategies of the two types of P2 and
P1’s beliefs on P2’s type.
… the strategy of each type of P2 is optimal, given P1’s strategy.
 Finding Bayesian Nash Equilibrium
Nature
Wishes to Meet Wishes to Avoid
p = 0.5 p = 0.5
1

F M F M
2 2

F M F M F M F M

(2, 1) (0, 0) (0, 0) (1, 2) (2, 0) (0, 2) (0, 1) (1, 0)

Converting to Normal form:

P2
FF FM MF MM
2, 0.5 1, 1.5 1, 0 0, 1 (F, FM) is the BNE.
F
P1
M 0, 0.5 0.5, 0 0.5, 1.5 1, 1
 Another Example
• Player 2 has two types.
… Type I with probability 0.2
… Type II with probability 0.8
• Player 1 knows that player 2 can be of either of the two types
with the above probabilities.

Type I (0.2) Type II (0.8)

 Extensive-Form Representation

Nature
Type I Type II
p = 0.2 p = 0.8
1
Up Down Up Down

2 2

L R L R L R L R

(3, 3) (0, 4) (2, 1) (1, 2) (3, 3) (0, 2) (2, 0) (1, 1)

 Computing BNE
P2
LL LR RL RR
Up 3, 3 0.6, 2.2 2.4, 3.2 0, 2.4
P1
D 2, 0.2 1.2, 1 1.8, 0.4 1, 1.2

Original Matrices:

Type I (0.2) Type II (0.8)

 After Applying Dominance

P2
RL (q) RR (1-q)
Up (p) 2.4, 3.2 0, 2.4
P1
Down (1-p) 1.8, 0.4 1, 1.2

• There are two pure strategy Bayesian Nash Equilibria:

(Up, RL) and (Down, RR)
• There is mixed strategy Bayesian Nash Equilibrium as well:
p = 1/2
q = 5/8
 Exercise: Gunfight in Wild West
• It is 1875 in Dodge City, Kansas, and there is a dispute in the local saloon.
Marshal Wyatt Earp arrives to restore order; then one of the men steps
back and pulls his hand away from his body as if about to draw his gun.
The decision faced by Earp and the stranger is whether to draw
immediately or instead wait and draw only in response to the other’s
pulling out his gun. The shooting talents of Earp are known, but Earp
doesn’t know the stranger’s skill level. Is he a gunslinger or just a plain
cowpoke? In each scenario, both Earp and the stranger would see
themselves as playing the simultaneous-move game depicted below.
Gunfight in Wild West: Bayesian Game
Converting to normal form

Stranger
DW DD
D 2.5, 2.5 2.75, 2.75
Earp

W 2.75, 4 2.25, 3.75

 Exercise
Consider the following Bayesian game:
• Nature decides whether the payoffs are as in matrix I or matrix II, with
equal probabilities.
• Row is informed of the choice of Nature, Col is not
• Row chooses U or D, COL chooses L or R and the choices are made
simultaneously.
• Payoffs are as in the matric chosen by nature.
For the game, find all the Bayesian Nash Equilibria.

Ans: (UD, L) is a BNE

 Exercise
Consider the following Bayesian game:
• Row and COL play a game in which ROW knows his type but COL does not.
• With probability 3/5 ROW is a person that plays considering matrix I and
with probability 2/5 the game is played in matrix II.
For the game, find all the Bayesian Nash Equilibria.