Tutorial: building and finding the equilibrium for a simple game¶

Introduction to game theory¶ Game theory is the study of strategic interactions between rational agents. Simply put that means that it’s the study of interactions when the involved parties try and do what is best from their point of view. As an example let us consider Rock Paper Scissors. This is a common game where two players choose one of 3 options (in game theory we call these strategies): Rock

Paper

Scissors The winner is decided according to the following: Rock crushes scissors

Paper covers Rock

Scissors cuts paper We can represent this mathematically using a 3 by 3 matrix: \[\begin{split}A = \begin{pmatrix} 0 & -1 & 1\\ 1 & 0 & -1\\ -1 & 1 & 0 \end{pmatrix}\end{split}\] The matrix \(A_{ij}\) shows the utility to the player controlling the rows when they play the \(i\) th row and their opponent (the column player) plays the \(j\) th column. For example, if the row player played Scissors (the 3rd strategy) and the column player played Paper (the 2nd strategy) then the row player gets: \(A_{32}=1\) because Scissors cuts Paper. A recommend text book on Game Theory is [Maschler2013].

Installing Nashpy¶ We are going to study this game using Nashpy, first though we need to install it. Nasphy requires the following things to be on your computer: Python 3.5 or greater;

Scipy 0.19.0 or greater;

Numpy 1.12.1 or greater. Assuming you have those installed, to install Nashpy: On Mac OSX or linux open a terminal;

On Windows open the Command prompt or similar and type: $ pip install nashpy If this does not work, you might not have Python or one of the other dependencies. You might also have problems due to pip not being recognised. To overcome these, using the Anaconda distribution of Python is recommended as it installs straightforwardly on all operating systems and also includes the libraries needed to run Nashpy .

Creating a game¶ We can create this game using Nashpy: >>> import nashpy as nash >>> import numpy as np >>> A = np . array ([[ 0 , - 1 , 1 ], [ 1 , 0 , - 1 ], [ - 1 , 1 , 0 ]]) >>> rps = nash . Game ( A ) >>> rps Zero sum game with payoff matrices: Row player: [[ 0 -1 1] [ 1 0 -1] [-1 1 0]] Column player: [[ 0 1 -1] [-1 0 1] [ 1 -1 0]] The string representation of the game also contains some information. For example, it is also showing the matrix that corresponds to the utility of the column player. In this case that is just \(-A\) but that does not always have to be the case. We can in fact pass a pair of matrices to the game class to create the same game: >>> B = - A >>> rps = nash . Game ( A , B ) >>> rps Zero sum game with payoff matrices: Row player: [[ 0 -1 1] [ 1 0 -1] [-1 1 0]] Column player: [[ 0 1 -1] [-1 0 1] [ 1 -1 0]] We get the exact same game, if passed a single game, Nashpy will assume that the game is a zero sum game: in other words the utilities of both players are opposite.

Calculating the utility of a pair of strategies¶ If the row player played Scissors (the 3rd strategy) and the column player played Paper (the 2nd strategy) then the row player gets: \(A_{32}=1\) because Scissors cuts Paper. A mathematical approach to representing a strategy is to consider a vector of the size: the number of strategies. For example \(\sigma_r=(0, 0, 1)\) is the row strategy where the row player always plays their third strategy. Similarly \(\sigma_c=(0, 1, 0)\) is the strategy for the column player where they always play their second strategy. When we represent strategies like this we can get the utility to the row player using the following linear algebraic expression: \[\sigma_r A \sigma_c^T\] Similarly, if \(B\) is the utility to the column player their utility is given by: \[\sigma_r B \sigma_c^T\] We can use Nashpy to find these utilities: >>> sigma_r = [ 0 , 0 , 1 ] >>> sigma_c = [ 0 , 1 , 0 ] >>> rps [ sigma_r , sigma_c ] array([ 1, -1]) Players can of course choose to play randomly, in which case the utility corresponds to the long term average. This is where our representation of strategies and utility calculations becomes particularly useful. For example, let us assume the column player decides to play Rock and Paper “randomly”. This corresponds to \(\sigma_c=(1/2, 1/2, 0)\): >>> sigma_c = [ 1 / 2 , 1 / 2 , 0 ] >>> rps [ sigma_r , sigma_c ] array([ 0., 0.]) The row player might then decide to change their strategy and “randomly” play Paper and Scissors: >>> sigma_r = [ 0 , 1 / 2 , 1 / 2 ] >>> rps [ sigma_r , sigma_c ] array([ 0.25, -0.25]) The column player would then probably deviate once more. Whether or not their is a pair of strategies for both players at which they both no longer have a reason to move is going to be answered in the next section.