# 1 Nonzero sum games and Nash equilibria

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1 princeton univ. F 14 cos 521: Advanced Algorithm Design Lecture 19: Equilibria and algorithms Lecturer: Sanjeev Arora Scribe: Economic and game-theoretic reasoning specifically, how agents respond to economic incentives as well as to each other s actions has become increasingly important in algorithm design. Examples: (a) Protocols for networking have to allow for sharing of network resources among users, companies etc., who may be mutually cooperating or competing. (b) Algorithm design at Google, Facebook, Netflix etc. what ads to show, which things to recommend to users, etc. not only has to be done using objective functions related to economics, but also with an eye to how users and customers change their behavior in response to the algorithms and to each other. Algorithm design mindful of economic incentives and strategic behavior is studied in a new field called Algorithmic Game Theory. (See the book by Nisan et al., or many excellent lecture notes on the web.) Last lecture we encountered zero sum games, a simple setting. Today we consider more general games. 1 Nonzero sum games and Nash equilibria Recall that a 2-player game is zero sum if the amount won by one player is the same as the amount lost by the other. Today we relax this. Thus if player 1 has n possible actions and player 2 has m, then specifying the game requires two a n m matrices A, B such that when they play actions i, j respectively then the first player wins A ij and the second wins B ij. (For zero sum games, A ij = B ij.) A Nash equilibrium is defined similarly to the equilibrium we discussed for zero sum games: a pair of strategies, one for each player, such that each is the optimal response to the other. In other words, if they both announce their strategies, neither has an incentive to deviate from his/her announced strategy. The equilibrium is pure if the strategy consists of deterministically playing a single action. Example 1 (Prisoners Dilemma) This is a classic example that people in myriad disciplines have discussed for over six decades. Two people suspected of having committed a crime have been picked up by the police. In line with usual practice, they have been placed in separate cells and offered the standard deal: help with the investigation, and you ll be treated with leniency. How should each prisoner respond: Cooperate (i.e., stick to the story he and his accomplice decided upon in advance), or Defect (rat on his accomplice and get a reduced term)? Let s describe their incentives as a 2 2 matrix, where the first entry describes payoff for the player whose actions determine the row. If they both cooperate, the police can t prove much and they get off with fairly light sentences after which they can enjoy their loot (payoff of 3). If one defects and the other cooperates, then the defector goes scot free and has a high payoff of 4 whereas the other one has a payoff of 0 (long prison term, plus anger at his accomplice). 1

2 2 Cooperate Defect Cooperate 3, 3 0, 4 Defect 4, 0 1, 1 The only pure Nash equilibrium is (Defect, Defect), with both receiving payoff 1. In every other scenario, the player who s cooperating can improve his payoff by switching to Defect. This is much worse for both of them than if they play (Cooperate, Cooperate), which is also the social optimum where the sum of their payoffs is highest at 6 is to cooperate. Thus in particular the social optimum solution is not a Nash equilibrium. ((OK, we are talking about criminals here so maybe social optimum is (Defect, Defect) after all. But read on.) One can imagine other games with similar payoff structure. For instance, two companies in a small town deciding whether to be polluters or to go green. Going green requires investment of money and effort. If one does it and the other doesn t, then the one who is doing it has incentive to also become a polluter. Or, consider two people sharing an office. Being organized and neat takes effort, and if both do it, then the office is neat and both are fairly happy. If one is a slob and the other is neat, then the neat person has an incentive to become a slob (saves a lot of effort, and the end result is not much worse). Such games are actually ubiquitous if you think about it, and it is a miracle that humans (and animals) cooperate as much as they do. Social scientists have long pondered how to cope with this paradox. For instance, how can one change the game definition (e.g. a wise governing body changes the payoff structure via fines or incentives) so that cooperating with each other the socially optimal solution becomes a Nash equilibrium? The game can also be studied via the repeated game interpretation, whereby people realize that they participate in repeated games through their lives, and playing nice may well be a Nash equilibrium in that setting. As you can imagine, many books have been written. Example 2 (Chicken) This dangerous game was supposedly popular among bored teenagers in American towns in the 1950s (as per some classic movies). Two kids would drive their cars at high speed towards each other on a collision course. The one who swerved away first to avoid a collision was the chicken. How should we assign payoffs in this game? Each player has two possible actions, Chicken or Dare. If both play Dare, they wreck their cars and risk injury or death. Lets call this a payoff of 0 to each. If both go Chicken, they both live and have not lost face, so let s call it a payoff of 5 for each. But if one goes Chicken and the other goes Dare, then the one who went Dare looks like the tough one (and presumably attracts more dates), whereas the Chicken is better of being alive than dead but lives in shame. So we get the payoff table: Chicken Dare Chicken 5, 5 1, 6 Dare 6, 1 0, 0 This has two pure Nash equilibria: (Dare, Chicken) and (Dare, Chicken). We may think of this as representing two types of behavior: the reckless type may play Dare and the careful type may play Chicken.

3 3 Note that the socially optimal solution both players play chicken, which maximises their total payoff is not a Nash equilibrium. Many games do not have any pure Nash equilibrium. Nash s great insight during his grad school years in Princeton was to consider what happens if we allow players to play a mixed strategy, which is a probability distribution over actions. An equilibrium now is a pair of mixed strategies x, y such that each strategy is the optimum response (in terms of maximising expected payoff) to the other. Theorem 1 (Nash 1950) For every pair of payoff matrices A, B there is an odd number (hence nonzero) of mixed equilibria. Unfortunately, Nash s proof doesn t yield an efficient algorithm for computing an equilibrium: when the number of possible actions is n, computation may require exp(n) time. Recent work has shown that this may be inherent: computing Nash equilibria is PPADcomplete (Chen and Deng 06). The Chicken game has a mixed equilibrium: play each of Chicken and Dare with probability 1/2. This has expected payoff 1 4 ( ) = 3 for each, and a simple calculation shows that neither can improve his payoff against the other by changing to a different strategy. 2 Multiplayer games and Bandwidth Sharing One can define multiplayer games and equilibria analogously to single player games. One can also define games where each player s set of moves comes from a continuous set like the interval [0, 1]. Now we do this in a simple setting: multiple users sharing a single link of fixed bandwidth, say 1 unit. They have different utilities for internet speed, and different budgets. Hence the owner of the link can try to allocate bandwidth using a game-theoretic view, which we study using a game introduced by Frank Kelly. Figure 1: Sharing a fixed bandwidth link among many users 1. There are n users. If user i gets x units of bandwidth by paying w dollars, his/her

4 4 utility is U i (x) w, where the utility function U i is nonnegative, increasing, concave 1 and differentiable. If a unit of bandwidth is priced at p, this utility describes the amount of bandwidth desired by a utility-maximizing user: the ith user demands x i that maximises U i (x i ) px i. This maximum can be computed by calculus. 2. The game is as follows: user i offers to pay a sum of w i. The link owner allocates w i / j w j portion of the bandwidth to user i. Thus the entire bandwidth is used up and the effective price for the entire bandwidth is j w j. What n-tuple of strategies w 1, w 2,..., w n is a Nash equilibrium? Note that this n-tuple implies a per unit price p of j w j, and for each i his received amount is optimal at this price if x i = w i / j w j is the solution to max U i (x i ) w, which requires (by chain rule of differentiation): U i(x i )( 1 p w i p 2 ) = 1 U i(x i )(1 x i ) = p. This implicitly defines x i in terms of p. Furthermore, the left hand side is easily checked to be a decreasing function of x i. (Specifically, its derivative is (1 x i )U i (x i ) U (x i ), whose first term is negative by concavity and the second because U i (x i) 0 by our assumption that U i is an increasing function.) Thus i x i is a decreasing function of p. When p = +, the x i s that maximise utility are all 0, whereas for p = 0 the x i s are all 1, which violates the constraint i x i = 1. By the mean value theorem, there must exceed a choice of p between 0 and + where i x i = 1, and the corresponding values of w i s then constitute a Nash equilibrium. Is this equilibrium socially optimal? Let p be the socially optimal price. At this price the ith user desires a bandwidth x i that maximises U i (x i ) p x i, which is the unique x i that satisfies U i (x i) = p. Furthermore these x i s must sum to 1. By contrast, the Nash equilibrium price p N corresponds to solving U i (x i)(1 x i ) = p N. If the number of users is large (and the utility functions not too different so that the x i s are not too different) then each x i is small and 1 x i 1. Thus the Nash equilibrium price is close to but not the same as the socially optimal choice. Price of Anarchy One of the notions highlighted by algorithmic game theory is price of anarchy, which is the ratio between the cost of the Nash equilibrium and the social optimum. The idea behind this name is that Nash equilibrium is what would be achieved in a free market, whereas social optimum is what could be achieved by a planner who knows everybody s utilities. One identifies a family of games, such as bandwidth sharing, and looks at the maximum of this ratio over all choices of the players utilities. The price of anarchy for the bandwidth sharing game happens to be 4/3. Please see the chapter on inefficiency of equilibria in the AGT book. 1 Concavity implies that the going from 0 units to 1 brings more happiness than going from 1 to 2, which in turn brings more happiness than going from 2 to 3. For twice differentiable functions, concavity means the second derivative is negative.

5 5 3 Correlated equilibria In HW 3 you were asked to simulate two strategies that repeatedly play Rock-Paper-Scissors while minimizing regret. The Payoffs were as follows: Rock Paper Scissor Rock 0,0 0, 1 1, 0 Paper 1, 0 0, 0 0, 1 Scissor 0, 1 1, 0 0, 0 Possibly you originally guessed that they would converge to playing Rock, Paper, Scissor randomly. However, this is not regret minimizing since it leads to payoff 0 every third round in the expectation. What you probably saw in your simulation was that the players converged to a correlated strategy that guarantees one of them a payoff every other round. Thus they learnt to game the system together and maximise their profits. This is a subcase of a more general phenomenon, whereby playing low-regret strategies in general leads to a different type of equilibrium, called correlated equilibrium. Example 3 In the game of Chicken, the following is a correlated equilibrium: each of the three pairs of moves other than (Dare, Dare) with probability 1/3. This is a correlated strategy: there is a global random string (or higher agency) that tells the players what to do. Neither player knows what the other has chosen. Suppose we think of the game being played between two cars approaching a traffic intersection from two directions. Then the correlated equilibrium of the previous paragraph has a nice interpretation: a traffic light! Actually, it is what a traffic light would look like if there were no traffic police to enforce the laws. The traffic light would be programmed to repeatedly pick one of three states with equal probability: (Red, Red), (Green, Red), and (Red, Green). (By contrast, real-life lights cycle between (Red, Green), and (Green, Red); where we are ignoring Yellow for now.) If a motorist arriving at the intersection sees Green, he knows that the other motorist sees Red and so can go through without hesitation. If he sees Red on the other hand, he only knows that there is equal chance that the other motorist sees Red or Green. So acting rationally he will come to a stop since otherwise he has probability 1/2 of getting into an accident. Note that this means that when the light is (Red, Red) then the traffic would be sitting at a halt in both directions. The previous example illustrates the notion of correlated equilibrium, and we won t define it more precisely. The main point is that it can be arrived at using a simple algorithm, namely, multiplicative weights. Unfortunately, correlated equilibria are also not guaranteed to maximise social welfare. Bibliography 1. Algorithmic Game Theory. Nisan, Roughgarden, Tardos, Vazirani (eds.), Cambridge University Press The mathematics of traffic in networks. Frank Kelly. In Princeton Companion to Mathematics (T. Gowers, Ed.). PU Press 2008.

6 3. Settling the Complexity of 2-Player Nash Equilibrium. X. Chen and X. Deng. IEEE FOCS

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