Lecture 8

Extensive Games with Imperfect Information

BESS/TSM
EC4010 - Economic Theory - Module 2 - Game Theory

Pedro C. Vicente
Trinity College Dublin
 Extensive Games with Imperfect Information
● To describe an extensive form game with perfect information, we need to
specify: the set of players, the set of terminal histories, the player function,
and the players’ preferences
● To describe an extensive form game with imperfect information, we need
to add a single item to this list: a specification of each player’s information
about the history at every point at which she moves
● Denote by H i the set of histories after which i moves; we specify player i’s
information by partitioning H i 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 set has occurred
● Suppose that player i moves after the histories C, D, E, i.e. H i = C, D, E
and is informed only that the history is C, or that it is either D or E; thus
i’s information partition consists of two information sets: C and D, E
▪ If i is not informed at all about which history has occurred, then her
information partition consists of a single information set, C, D, E; if
i is fully informed: C, D, E

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 Extensive Games with Imperfect Information
Notation

● As before, denote the set of actions available to the player who moves
after history h by Ah; we allow to histories h and h ′ to be in the same
information set only if Ah = Ah ′ 
● This is because the player who moves after any history must know the set
of actions available after that history; if the action sets were different she
could distinguish between the histories h and h ′
● If the information set that contains h and h ′ is I i , the common value of
Ah and Ah ′  is denoted AI i ; i.e. AI i  is the set of actions available to
player i at her information set I i
● In the definition of extensive form game imperfect information (next
slide), we allow for chance moves

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 Extensive Games with Imperfect Information
Definition
Definition (Extensive Form Game with Imperfect Information): It consists
of:
● A set of players
● A set of sequences (terminal histories) having the property that no
sequence is a proper subhistory of any other sequence
● The player function that assigns either a player or chance to every
sequence that is a proper subhistory of some terminal history
● A function that assigns to each history that the player function assigns to
chance: a prob. distribution over the actions available after that history
● For each player, a partition (the player’s information partition) of the set
of histories assigned to that player by the player function such that for
every history h in any given member of the partition, the set Ah of
actions available is the same
● for each player, preferences over the set of lotteries over terminal
histories

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 Extensive Games with Imperfect Information
Battle of the Sexes - Example
● Consider the Bach or Stravinsky game from before:
Player 2
B S
Player B 2, 1 0, 0
1 S 0, 0 1, 2
● We now model this game as an extensive form game in which player 2
plays after player 1 but is not informed about player 1’s move (check
figure):
▪ Players: 1 and 2
▪ Terminal histories: B, B, B, S, S, B, S, S
▪ Player function: P = 1, PB = PS = 2; no chance moves
▪ Information partitions: player 1’s information partition is a single set,
; player 2’s is also a single set B, S
▪ Preferences: as given above for each terminal history

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 Extensive Games with Imperfect Information
Modified Entry Game - Example

● An incumbent faces the possibility of entry by a challenger; the challenger

has three choices (instead of two, as before with perfect information):
▪ it may stay out
▪ prepare itself for combat and enter
▪ or enter without making any preparations
● Preparation is costly but reduces the loss from a fight
● The incumbent may either fight or acquiesce to entry; a fight is less costly
to the incumbent if the entrant is unprepared; but regardless of the
entrant’s readiness, the incumbent prefers to acquiesce than to fight
● The incumbent observes whether the challenger enters but not whether an
entrant is prepared
(check figure)
● Each player has a single information set: challenger’s is the empty history;
incumbent’s is ready, unready

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 Extensive Games with Imperfect Information
Strategies

● As in an extensive form game with perfect information, a strategy for a

player in a general extensive form game specifies the action the player
takes whenever it is her turn to move
● In a general game, a player takes an action at each of her information sets
Definition (Strategy in Extensive Form Game of Imperfect Information):
A pure strategy of player i in an extensive form game is a function that assigns
to each of i’s information sets I i an action in AI i 
● Examples: BoS: B or S for both players; Entry: U, R, or O for C; F or A
for I
Definition (Mixed Strategy in Extensive Form Game of Imperfect
Information): A mixed strategy of a player in an extensive form game is a
probability distribution over the player’s pure strategies

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 Extensive Games with Imperfect Information
Nash Equilibrium

● The definition of a NE is straightforward in this context: a strategy profile

is a NE if no player has an alternative strategy that increases her payoff,
given the other players’ strategies

Definition (Nash Equilibrium of Extensive Form Game with Imperfect

Information): The mixed strategy profile α ∗ in an extensive form game is a
mixed strategy NE if, for each player i and every mixed strategy α i of player i,
player i’s expected payoff to α ∗ is at least as large as her expected payoff to
α i , α ∗−i  according to a payoff function whose expected value represents player
i’s preferences over lotteries

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 Extensive Games with Imperfect Information
● BoS: The strategic form game is exactly the same as we had before; NE in
pure startegies are B, B and S, S; in mixed strategies we have 1 using
2/3, 1/3 and 2 using 1/3, 2/3 (verify at home)
● Entry: The strategic form of the game shown before is:
Acquiesce Fight
Ready 3, 3 1, 1
Unready 4, 3 0, 2
Out 2, 4 2, 4
● ▪ The game has two NE in pure strategies, unready, acquiesce and
out, fight; and one mixed strategy NE, out, at most probability 1/2
attributed to acquiesce (verify at home)
▪ out, fight is not plausible; if C enters, I will always prefer to
acquiesce (regardless of C’s preparadness); SPE eliminated this NE
▪ Natural extension: each player’s strategy be optimal at each of her
information sets; here assigning any pos. prob. to fight is suboptimal

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 Sequential Equilibrium
Beliefs

● We assume that at an information set that contains more than one history,
the player whose turn it is to move forms a belief about the history that has
occurred
● We model this belief as a probability distribution over the histories in the
information set; we call a collection of beliefs, one for each information
set of every player, a belief system
Definition (Belief System): A belief system in an extensive form game is a
function that assigns to each information set a probability distribution over the
histories in that information set
● Entry: information set  has  with prob. 1, and information set U, R
has a non-trivial prob. distribution assigned to the histories U and R

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 Sequential Equilibrium
Strategies

● Rather than allowing a player to choose a probability distribution over a

player’s pure strategies, we now have her assign to each of her information
sets a probability distribution over the actions available at that set; we refer
to such an assignment as a behavioral strategy
Definition (Behavioral Strategy in Extensive Form Game): A behavioral
strategy of player i in an extensive form game is a function that assigns to each
of i’s information sets I i a probability distribution over the actions in AI i ,
with the property that each probability distribution is independent of every
other distribution
● In all games we study, behavioral and mixed strategies are equivalent;
behavioral strategies are easier to work with when studying sequential
equilibrium; they are identical in the case of BoS

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 Sequential Equilibrium
Definition (Assessment): An assessment in an extensive form game is a pair
consisting of a profile of behavioral strategies and a belief system
● An assessment is an equilibrium if it satisfies:
▪ Sequential Rationality: Each player’s strategy is optimal whenever
she has to move, given her belief and the other players’ strategies
▪ Consistency of Beliefs with Strategies: Each player’s belief is
consistent with the strategy profile
● Sequential rationality generalizes the requirement of SPE that each
player’s strategy be optimal in the part of the game that follows each
history after which she moves, given the strategy profile, regardless of
whether this history occurs if the players follow their strategies
● Sequential rationality requires that each player’s strategy be optimal in the
part of the game that follows each of her information sets, given the
strategy profile and given the player’s belief about the history in the
information set that has occurred, regardless of whether the information
set is reached if the players follow their strategies

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 Sequential Equilibrium
Sequential Rationality

● Let β, μ be an assessment in an arbitrary game (β is a profile of

behavioral strategies, and μ is a belief system), and let I i be an information
set of player i
● Denote by O I i β, μ the probability distribution over terminal histories that
results if each history in I i occurs with the probability assigned to it by i’s
belief μ i (which is not necessarily the probability with which it occurs if
the players adhere to β), and subsequently the players adhere to the
strategy profile β
(check example)
● We can now state precisely the sequential rationality requirement: for each
player i and each of her information sets I i , her expected payoff to
O I i β, μ is at least as large as her expected payoff to O I i γ i , β −i , μ for
each of her behavioral strategies γ i

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 Sequential Equilibrium
Consistency

● We formulate the consistency requirement to restrict the belief system

only at information sets reached with positive probability if every player
adheres to her strategy
● Precisely, we require that the probability assigned to every history h ∗ in
such an information set by the belief of the player who moves there is:
equal to the probability that h ∗ occurs according to the strategy profile,
conditional on the information set’s being reached
▪ This amounts to using Bayes’ rule; denoting the information set by I i
and the strategy profile by β, this probability is
Prh ∗ according to β
∑ h∈I i Prh according to β

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 Sequential Equilibrium
Definition

Definition (Weak Sequential Equilibrium): An assessment β, μ, consisting

of a behavioral strategy profile β and a belief system μ, is a weak sequential
equilibrium if it satisfies the following two conditions:
● Sequential Rationality: For each player i and each information set I i of
player i, player i’s expected payoff to the probability distribution O I i β, μ
over terminal histories generated by her belief μ i at I i and the behavior
prescribed subsequently by strategy profile β is at least as large as her
expected payoff to the probability distribution O I i γ i , β −i , μ for each of
her behavioral strategies γ i
● Weak Consistency of Beliefs with Strategies: For every information set
I i reached with positive probability given the strategy profile β, the
probability assigned by the belief system to each history h ∗ in I i is given
by Bayes’ rule as in last slide

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 Sequential Equilibrium
Relationship with Other Concepts

● In an extensive form game with perfect information only one belief system
is possible (that in which every player believes at each information set that
the single compatible history has occurred with probability 1)
▪ Thus: in an extensive form game with perfect information, the
strategy profile in any weak sequential equilibrium is a SPE
● In a general extensive form game, the requirement of sequential rationality
implies, in particular, that each player’s strategy is optimal at the
beginning of the game, given the other players’ strategies and the player’s
belief about the history at each information set; further, the consistency
requirement implies that each player’s belief about the history is correct at
any information set reached with positive probability when the players
follow their strategies
▪ Thus, the strategy profile in any weak sequential equilibrium is a NE

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 Sequential Equilibrium
Examples

● Example from the last slides

● BoS
● Entry game

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