Psychological Games and

Sequential Rationality
by John Geanakoplos

Ran Mu 10847042
Qianya Wang 10847052
Content

1. Introduction

2. Normal Form

3. Extensive Form

4. Conclusion

5. Further Discussion
Content

Definitions
1. Introduction Bravery Game
Confidence Game
2. Normal Form Theorem 1
Definitions
3. Extensive Form Theorem 2
Backward induction
4. Conclusion Trembling hand
Sympathy
5. Further Discussion
 Introduction

™Psychological game
ƒ Player’s payoffs depend on not only what
everybody
b d ddoes bbutt also
l what
h t everybody
b d
thinks.

ƒ “Expectation”
p
 Expectations VS. Payoffs
(11,5)
Player
y U
Play 2 expects player 1 2
choose “u”. u D (0,1)
Player
1 d
(10,10)

(11,0)
Player U
Pl
Play 2 expects player 1 2
choose “d”. u D (0 2)
(0,2)
Player
1 d
(10,10)
Content

Definitions
1. Introduction Bravery Game
Confidence Game
2. Normal Form Theorem 1

3. Extensive Form

4. Conclusion

5. Further Discussion
 Useful definitions

™1. Normal form psychological game

™1
ƒ G=(A1,…, An; ui,…, un)consists of an action
sett Ai and
d a utility
tilit ffunction
ti ui : Bi × ∑ → ℜ for
f
each player i
 Useful definitions

™2. Psychological Nash Equilibrium

™2
ƒ A psychological Nash Equilibrium of a normal
psychological
h l i l game G iis a pair i
such that
ƒ (1) bˆ = β (σˆ ) and
ƒ ((2)) for each i ∈ N , σ i ∈ ∑ i , ui (bˆi , (σ i ,σˆ −i )) ≤ ui (bˆi , σˆ ) .
 The Bravery Game
™ Player 1 makes decision: bold or timid.
™ Player 1 is concerned with what player 2 will think about him.
Both payoff depends on expectations.

2 − q~,2(1 + q )
bold
Player1 is bold
p
player 1 p
1
player 2 q= E(p) 1-p
player 1 q~ = E(q) timid
3 1 − q~）
（ ,1 - q

™ Player 1 : bold, when p ≥ ½

™ Player 2 : bold, always
The Bravery Game

™ In equilibrium p=q= q~

2 − q~,2(1 + q )
™ 3 equilibrium:
ilib i bold
p
payoffs
p y 1
~
p=q= q =1 (1,4) 1-p
~
p=q= q =0 (3,1) timid
3 1 − q~）
（ ,1 - q
p=q= q~ 1 3 ，7
=2 (2 4 )
 A Confidence Game
™ Player 1 invite a woman for a date.
™ Player
y 1 can’t tell whether she is p
player
y 2,, who likes him,,
or player 3, who doesn’t.
™ The first move is by nature player 0.

accept 1 + q + s,3(q~ + ~
s ),0
p
Player 2
1-p
1/2
reject 4 q + s ),1,0
-（
Player 0
accept 1 + q + s,0,0
r
1/2
Player 3 1r
1-r
reject 4 q + s ),0,1
-（
 A Confidence Game
™ Player 1’s payoff depends on not only on whether he is
accepted
p or rejected
j but also on his expectations.
p
She is player 2 She is player 3
player 1 P R
player 2 q= E(p) s=E(r)
or 3
player
p y 1 q~= E(q)
(q) ~s=E(s)
( )

™ 3 Equilibrium accept 1 + q + s ,3( q~ + ~

s ),0
payoffs p
Player 2
~ 1-p
p=q= q =1 (-1,3/2,1/2) 1/2
reject 4 q + s ),1,0
-（
r=s = ~
s =0
~ Player 0 1 + q + s ,0,0
p=q= q =0 (0,1/2,1/2) acceptt
r
r=s = ~
s =0 1/2
~ Player 3 1-r
p=q= q =1/3 (-8/9,1/2,1/2) reject 4 q + s ), 0,1
-（
r=s = ~
s =0
0
 Theorem 1

™Existence Theorem for Nash Equilibria of

Normal Form Psychological Games
L t G = ( A1 ,..., An ; u1 ,..., un ) b
ƒ Let be a normall fform
psychological game. Assume ui : Bi × ∑ → ℜ is
continuous
ti ffor each h i ∈ N . Th Then G has
h a
psychological Nash Equilibrium.
Content

1. Introduction

2. Normal Form

Definitions
3. Extensive Form Theorem 2
Backward induction
4. Conclusion Trembling hand
Sympathy
5. Further Discussion
 Useful definitions of
Extensive Model
™ 1.
1 Game form F=(N,V,<,
F=(N V < m,
m ρ,ρ Π,
Π A)
N:Set of players={1,…,n}
V Fi it sett off vertices
V:Finite ti
<:Partial order
m:Move function in nonterminal nodes
ρ :Probability distribution specifying the
moves of nature
Π:Information partition of nonterminal nodes
A:Set of actions in nonterminal nodes
 Useful definitions of
Extensive Model

Initial Beliefs A behavior strategy for

™2.Initial
™2
player i associates with every h∈Πi a
probability distribution σt(h) over At(h).
(h)
Let ∑t(h):=Δ(At(h)) and ∑i denote the set
of player
pla e i’s strategies,
st ategies and define
∑:=×i∈N ∑i and ∑-i :=×j≠i ∑j
 Useful definitions of
Extensive Model
™3.Utility Function Each strategy profile σ∈∑
(together with ρ) induces a probability
distribution Pσ over the terminal nodes T.
Player 1’s utility function
depends on his initial beliefs and on the
outcome reached. Assume player i only
cares about the expected value of , and
extend his utility function to by
 Useful definitions of
Extensive Model

Subgame Perfection The pair

™4.Subgame
™4
is a subgame perfect psychological Nash
equilibrium of if it is a
psychological Nash equilibrium and is a
subgame perfect equilibrium of , in the
traditional sense.
Theorem 2

Let be an extensive
psychological game. Assume is
continuous for each i∈N.
i∈N Then has a
subgame perfect psychological
equilibrium. Indeed has a sequential
psychological equilibrium.
Backward Induction example
Standard game version Extensive version

99, 0 , 10
1-q What if we add
2 psychological
1-p component to
q
101, 1 , 0 the payoffs of
1 player 2 and 3?
1-rr
1 98, 0 , 0

p
3
r
100, 10 , 1
 Backward Induction example
Standard game version Extensive version

1-q 99, , 10
:player3’s
2 expectation of the
1-p probability that 2
q 101, 1 , 0 plays down.
1 : player2
player2’s
s
1-r 98, 0 ,
p expectation of the
probability that 3
3 plays
l d
down.
r 100, 10 , 1
Easy to find:
1). Backward induction no longer works
1). No equilibrium in pure strategy but a unique sub game perfect psy equilibrium
in mixed strategy: 2 and 3 randomize to make the other indifferent , =q=4/5
=q=4/5,
=r=1/5,and P1choose p=0
 Example—Trembling hand perfect
is P1’s expectation of P2’s expectation of the probability that 1choose up.
In equilibrium, =p

q ,1 0,1
β1
2 2
p α1
1-q β2
2, 0 2,0
1 1
1-p α2
0, 0 0, 0

(α2 ; β1) is not trembling hand perfect in the induced game, the only such
profile is (α1 ; β2)

So, in psychological games, trembling hand perfect equilibria

(Selten 1975) need not exit
(Selten,1975) exit.
 Evolution of sympathy
—dynamic
dynamic prisoner’s dilemma

• P2’s payoffs are modified

by a “sympathy factor” α,
C D which is proportional to the
difference between P2’s
C 10, 10 + α 0, 11 expectation of 1’s choice and
P1’s actual choice.
• α will be changing over
D time. If 2expects 1 to choose
11, α 1, 1
c with probability p, then next
period α=α+k(1
period, α=α+k(1-p)
p) if 1
choose c, otherwise, α=α-kp
“sympathetic coefficient” k≥0
i a given
is i parameter
t
Content

1. Introduction

2. Normal Form

3. Extensive Form

4. Conclusion

5. Further Discussion
 Conclusion
1. Emotional reactions often depend on
expectations Psychological games provide a
expectations.
frame work for this.
2 This paper formulate analogs of Nash
2.
equilibrium and several of its refinements in
psychological
p y g games.
g
3. Backward induction no loner affords a proof of
the existence of subgame equilibria.
4. Trembling hang perfect equilibrium need not
exist in psychological games.
5. Prove the existence of subgame perfect and
sequential psychological equilibria.
 Further Discussion

™Only initial beliefs enter the utility function

in this paper. While in principle, beliefs
may be modified in the play processes.
processes
™Only some players’ expectations about
othe ones’ actions were
other e e considered,
conside ed howho
about take all players’ expectation into
conside ation?
consideration?