Tutorial: Introduction to Game Theory
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1 July, 2013 Tutorial: Introduction to Game Theory Jesus Rios IBM T.J. Watson Research Center, USA
2 Approaches to decision analysis Descriptive Understanding of how decisions are made Normative Models of how decision should be made Prescriptive Helping DM make smart decisions Use of normative theory to support DM Elicit inputs of normative models DM preferences and beliefs (psycho-analysis) use of experts Role of descriptive theories of DM behavior 2
3 Game theory arena Non-cooperative games More than one intelligent player Individual action spaces Interdependent consequences Players consequences depend on their own and other player actions Cooperative game theory Normative bargaining models Joint decision making - Binding agreements on what to play Given players preferences and solution space Find a fair, jointly satisfying and Pareto optimal agreement/solution Group decision making on a common action space (Social choice) Preference aggregation Voting rules - Arrow s theorem Coalition games 3
4 Cooperative game theory: Bargaining solution concepts Working alone Juan $ 10 Maria $ 20 Working together $ 100 How to distribute the profits of the cooperation? Juan x Maria y Maria 90 y x + y = 100 K Fair Bliss point Disagreement point: BATNA, status quo Feasible solutions: ZOPA Pareto-efficiency Aspiration levels Fairness: K-S, Nash, maxmin solutions x = 45 y = x 80 Juan
5 Normative models of decision making under uncertainty Models for a unitary DM vn-m expected utility Objective probability distributions Subjective expected utility (SEU) Subjective probability distributions Example: investment decision problem One decision variable with two alternatives In what to investment? - Treasury bonds - IBM shares One uncertainty with two possible states IBM share price at the end of the year - High - Low One evaluation criteria for consequences Profit from investment The simplest decision problem under uncertainty 5
6 Decision Table DM chooses a row without knowing which column will occur Choice depends on the relative likelihood of High and Low? If DM is sure that IBM share price will be High, best choice is to buy Shares If DM is sure that IBM share price will be Low, best choice is to buy Bonds Elicit the DM s beliefs about which column will occur Choice depends on the value of money Expected return not a good measure of decision preferences The two alternatives give the same expected return but most of DMs would not fell indifferent between them Elicit risk attitude of the DM 6
7 Decision tree representation What to buy IBM Shares price High Low $2,000 - $1,000 uncertainty Bonds $500 certainty What does the choice depends upon? relative likelihood of H vs L strength of preferences for money 7
8 Subjective expected utility solution If DM s decision behavior consistent with some set of rational desiderata (axioms) DM decides as if he has probabilities to represent his beliefs about the future price of IBM share utilities to represent his preferences and risk attitude towards money and choose the alternative of maximum expected utility The subjective expected utility model balance in a rational manner the DM s beliefs and risk attitudes Application requires to know the DM s beliefs and utilities Different elicitation methods compute of expected utilities of each decision strategy It may require approximation in non-simple problems 8
9 A constructive definition of utility The Basic Canonical Reference Lottery ticket: p-bcrl BCLR p 1 - p $2,000 - $1,000 Preferences over BCRL p-bcrl > q-bcrl iff p > q where p and q are canonical probabilities 9
10 Elicit prob. of the price of IBM shares Event H IBM price High Event L IBM price Low IBM shares price H L $2,000 - $1,000 Pr( H ) + Pr( L ) = 1 Move p from 1 to 0 Which alternative is preferred by the DM? IBM shares p-bcrl p-bcrl BCRL p 1 - p There exists a breakeven canonical prob. such that the DM is indifferent p H -BCRL ~ IBM shares The judgmental probability of H is p H $2,000 - $1,000 10
11 Elicit the utility of $500 U( $500 )? p - BCLR BCLR p 1 - p $2,000 - $1,000 Move p from 1 to 0 Which alternative is preferred by the DM? Bonds p-bcrl vs. Bonds There exists a breakeven canonical prob. such that the DM is indifferent u-bcrl ~ Bonds This scales the value of $500 between the value of $2,000 and - $1,000 U($500) = u What is then U($500)? $500 The probability of a BCRL between $2,000 and - $1,000 that is indifferent (for the DM) to getting $500 with certainty 11
12 Comparison of alternatives IBM shares price H $2,000 L - $1,000 ~ p H $2,000 BCRL - $1,000 U($500) $2,000 BCLR The DM prefers to invest on IBM Shares iff p H > U($500) ~ Bonds - $1,000 $500 12
13 Solving the tree: backward induction Utility scaling 0 = U( - $1,000 ) < U( $500 ) = u < U( $2,000 ) = 1 Utilities IBM Shares price p H High $2,000 1 What to buy 1 - p H Low - $1,000 0 Bonds $500 u 13
14 Preferences: value vs. utility Value function measure the desirability (intensity of preferences) of money gained, but do not measure risk attitude Utility function Measure risk attitude but no intensity of preferences over sure consequences Many methods to elicit a utility function Qualitative analysis of risk attitude leads to parametric utility functions Ask quantitative indifference questions between deals (one of which must be an uncertain lottery) to assess parameters of utility function Consistency checks and sensitivity analysis 14
15 The Bayesian process of inference and evaluation with several stakeholders and decision makers (Group decision making) 15
16 Disagreements in group decision making Group decision making assumes Group value/utility function Group probabilities on the uncertainties If our experts disagree on the science (Expert problem) How to draw together and learn from conflicting probabilistic judgements Mathematical aggregation Bayesian approach Opinion pools - There is no opinion pool satisfying a consensus minimum set of good probabilistic properties Issues - How do we model knowledge overlap/correlation - Expertise evaluation Behavioural aggregation The textbook problem If we do not have access to experts we need to develop meta-analytical methodologies for drawing together expert judgment studies 16
17 Disagreements in group decision making If group members disagree on the values How to combine different individuals rankings of options into a group ranking? Arbitration/voting Ordinal rankings - Arrow impossibility results. Cardinal ranking (values and not utilities -- Decisions without uncertainty) - Interpersonal comparison of preferences strengths - Supra decision maker approach (MAUT) Issues: manipulation and true reporting of rankings Disagreement on the values and the science Combining individual probabilities and utilities into group probabilities and utilities, respectively, to form the corresponding group expected utilities and choosing accordingly Impossibility of being Bayesian and Paretian at the same time No aggregation method exist (of probabilities and utilities) compatible with the Pareto order Behavioral approaches Consensus on group probabilities and utilities via sensitivity analysis. Agreement on what to do via negotiation 17
18 Decision analysis in the presence of intelligent others Matrix games against nature One player: R (Row) Two choices: U (Up) and D (Down) Payoff matrix Nature L R U 0 5 R D 10 3 If you were R, what would you do? D > U against L U > D against R 18
19 Games against nature Do we know which Colum nature will choose? We know our best responses to Nature moves, but not what move Nature will choose Do we know the (objective) probabilities of Nature s possible moves? YES p 1-p Nature L R Expected payoff R U D p + 5 (1-p) 10 p + 3 (1-p) U > D iff p < 1/6 Payoffs = vnm utils 19
20 Games against nature and the SEU criteria Do we know the (objective) probabilities of Nature s possible moves? No Variety of decision criteria - Maximin (pessimistic), maxmax (optimistic), Hurwicz, minimax regret, Nature L R Min Max Max Regret U R D Maxmin D Maxmax D Minmax Regret D SEU criteria Elicit DM s subjective probabilistic beliefs about Nature move (p) Compute SEU of each alternative: D > U iff p > 1/6
21 Games against others intelligent players Bimatrix (simultaneous) games Second intelligent player: C (Column) Two choices: L (Left) and R (Right) Payoff bimatrix we know C payoffs and that he will try to maximize them As R, what would you do? C L R R U D 0 5 * Knowledge C s payoffs and rationality allows us to predict with certitude C s move (R)
22 One shot simultaneous bi-matrix games Two players Trying to maximize their payoffs Players must choose one out of two fixed alternatives Row player chooses a row Column player chooses a column Payoffs depends of both players moves Simultaneous move game Players must act without knowing what the other player does Play once C No other uncertainties involved Players have full and common knowledge of L R choice spaces bi-matrix payoffs No cooperation allowed R U u R (U,L) u C (U,L) u R (U,R) u C (U,R) D u R (D,L) u C (D,L) u R (D,L) u C (D,L) 22
23 Dominant alternatives and social dilemmas Prisoner dilemma C (NC,NC) is mutually dominant C NC Players choices are independent of information regarding the other player s move (NC,NC) is socially dominated by (C,C) R C Airport network security NC 10-2 * -5-2 * 23
24 Iterative dominance No dominant strategy for either player, however There are iterative dominated strategies L > R Now M is dominant in the restricted game - M > U and M > D Now L > C in the restricted game - 20 > - 10 (M,L) solution by iteratively elimination of (strict) dominated strategies Common knowledge and rationality assumptions Exercise Find if there is a solution by iteratively eliminating dominated strategies Solution: (D,C) 24
25 Nash equilibrium Games without Dominant solution Solution by iterative elimination of dominated alternatives Concert Ballet Head Tails Ballet 0 2 * 0 1 Head Concert 1 0 * 2 0 Tails Battle of the sexes Matching pennies 25
26 Existence of Nash equilibrium (Nash) Every finite game has a NE in mixed strategies Requires extending the original set of alternatives of each player Consider the matching pennies game Mixed strategies Choosing a lottery of certain probabilities over Head and Tails Players choice sets defined by the lottery s probability Row: p in [0,1] Column: q in [0,1] Payoff associated with a pair of strategies (p,q) is (p,1-p) P (q,1-q) T where P is the payoff matrix for the original game in pure strategies Payoffs need to be vnm utilities Nash equilibrium Intersection of players best response correspondences u R (p*,q*) > u R (p,q*) u C (p*,q*) > u C (p*,q) (p*,q*) 26
27 Nash equilibria concept as predictive tool Supporting the row player against the column player Games with multiple NEs U D L * R * Two NEs (D,L) > (U,R), since 12>10 and 8>6 C may prefer to play R To protect himself against -100 Knowing this, R would prefer to play U ending up at the inferior NE (U,R) How can we model C behavior? Bayesian K-level thinking 27
28 K-level thinking p Row is not sure about Column s move p: Row s beliefs about C moving L Row s SEU U: 4 p + 10 (1-p) D: 12 p + 5 (1-p) q U > D iff p < 5/13 = 0.38 How to elicit p? Row s analysis of Column s decision Assuming C behave as a SEU maximizer q: C s beliefs about whether Row is smart enough to choose D (best NE) L SEU: -100 (1-q) + 8 q R SEU: 6 (1-q) + 4 q L > R iff q > 53/55 = 0.96 Since Row does not know q, his beliefs about q are represented by a CPD F p = Pr (q > 0.96) = F(0.96) 28
29 Simultaneous vs sequential games First mover advantage Both players want to move first Credible commitment/threat Second mover advantage Players want to observe their opponent s move before acting Both players try not to disclose their moves Game of Chicken Matching pennies game 29
30 Dynamic games: backward induction Sequential Defend-Attack games Two intelligent players Defender and Attacker Sequential moves First Defender, afterwards Attacker knowing Defender s decision 30
31 Standard Game Theoretic Analysis Expected utilities at node S Best Attacker s decision at node A Assuming Defender knows Attacker s analysis Defender s best decision at node D Solution: 31
32 Supporting a SEU maximizer Defender Defender s problem Defender s solution of maximum SEU Modeling input:?? 32
33 Example: Banks-Anderson (2006) Exploring how to defend US against a possible smallpox attack Random costs (payoffs) Conditional probabilities of each kind of smallpox attack given terrorists know what defence has been adopted This is the problematic step of the analysis Compute expected cost of each defence strategy Solution: defence of minimum expected cost 33
34 Predicting Attacker s decision:. Defender problem Defender s view of Attacker problem 34
35 Solving the assessment problem Defender s view of Attacker problem Elicitation of A is an EU maximizer D s beliefs about MC simulation 35
36 Bayesian decision solution for the sequential Defend- Attack model 36
37 Standard Game Theory vs. Bayesian Decision Analysis Decision Analysis (unitary DM) Use of decision trees Opponent actions treated as a random variables How to elicit probs on opponents decisions?? Sensitivity analysis on (problematic) probabilities Game theory (multiple DMs) Use of game trees Opponent actions treated as a decision variables All players are EU maximizers Do we really know the utilities our opponents try to maximizes? 37
38 Bayesian decision analysis approach to games One-sided prescriptive support Use a prescriptive model (SEU) for supporting one of the DMs Treat opponent's decisions as uncertainties Assess probs over opponent's possible actions Compute action of maximum expected utility The real bayesian approach to games (Kadane & Larkey 1982) Weaken common (prior) knowledge assumption How to assess a prob distribution over actions of intelligent others?? Adversarial Risk Analysis (DRI, DB and JR) Development of new methods for the elicitation of probs on adversary s actions by modeling the adversary s decision reasoning - Descriptive decision models 38
39 Relevance to counterbioterrorism Biological Threat Risk Assessment for DHS (Battelle, 2006) Based on Probability Event Trees (PET) Government & Terrorists decisions treated as random events Methodological improvements study (NRC committee) PET appropriate for risk assessment of Random failure in engineering systems but not for adversarial risk assessment Terrorists are intelligent adversaries trying to achieve their own objectives Their decisions (if rational) can be somehow anticipated PET cannot be used for a full risk management analysis Government is a decision maker not a random variable 39
40 Methodological improvement recommendations Distinction between risks from Nature/Accidents vs. Actions of intelligent adversaries Need of models to predict Terrorists behavior Red team role playing (simulations of adversaries thinking) Attack-preference models Examine decision from Attacker viewpoint (T as DM) Decision analytic approaches Transform the PET in a decision tree (G as DM) - How to elicit probs on terrorist decisions?? - Sensitivity analysis on (problematic) probabilities - Von Winterfeldt and O Sullivan (2006) Game theoretic approaches Transform the PET in a game tree (G & T as DM) 40
41 Models to predict opponents behavior Role playing (simulations of adversaries thinking) Opponent-preference models Examine decision from the opponent viewpoint Elicit opponent s probs and utilities from our viewpoint (point estimates) Treat the opponent as a EU maximizer ( = rationality?) Solve opponent s decision problem by finding his action of max. EU Assuming we know the opponent s true probs and utilities We can anticipate with certitude what the opponent will do Probabilistic prediction models Acknowledge our uncertainty on opponent s thinking 41
42 Opponent-preference models Von Winterfeldt and O Sullivan (2006) Should We Protect Commercial Airplanes Against Surface-to-Air Missile Attacks by Terrorists? 42 Decision tree + sensitivity analysis on probs
43 Parnell (2007) Elicit Terrorist s probs and utilities from our viewpoint Point estimates Solve Terrorist s decision problem Finding Terrorist s action that gives him max. expected utility Assuming we know the Terrorist s true probs and utilities We can anticipate with certitude what the terrorist will do 43
44 Parnell (2007) Terrorist decision tree 44
45 Paté-Cornell & Guikema (2002) Attacker Defender 45
46 Paté-Cornell & Guikema (2002) Assessing probabilities of terrorist s actions From the Defender viewpoint Model the Attacker s decision problem Estimate Attacker s probs and utilities (point estimates) Calculate expected utilities of attacker s actions Prob of attacker s actions proportional to their perceived EU Feed these probs into the Defender s decision problem Uncertainty of Attacker s decisions has been quantified Choose defense of maximum expected utility Shortcoming If the (idealized) adversary is an EU maximizer he would certainly choose the attack of max expected utility 46
47 How to assess probabilities over the actions of an intelligent adversary?? Raiffa (2002): Asymmetric prescriptive/descriptive approach Prescriptive advice to one party conditional on a (probabilistic) description of how others will behave Assess probability distribution from experimental data Lab role simulation experiments Rios Insua, Rios & Banks (2009) Assessment based on an analysis of the adversary rational behavior Assuming the opponent is a SEU maximizer - Model his decision problem - Assess his probabilities and utilities - Find his action of maximum expected utility Uncertainty in the Attacker s decision stems from our uncertainty about his probabilities and utilities Sources of information Available past statistical data of Attacker s decision behavior Expert knowledge / Intelligence 47
48 The Defend Attack Defend model Two intelligent players Defender and Attacker Sequential moves First, Defender moves Afterwards, Attacker knowing Defender s move Afterwards, Defender again responding to attack Infinite regress 48
49 Standard Game Theory Analysis Under common knowledge of utilities and probs At node Expected utilities at node S Best Attacker s decision at node A Best Defender s decision at node Nash Solution: 49
50 Supporting the Defender against the Attacker At node Expected utilities at node S At node A Best Defender s decision at node?? 50
51 Predicting Attacker s problem as seen by the Defender 51
52 Assessing Given 52
53 Monte-Carlo approximation of Drawn Generate by Approximate 53
54 The assessment of The Defender may want to exploit information about how the Attacker analyzes her problem Hierarchy of recursive analysis Infinity regress Stop when there is no more information to elicit 54
55 Games with private information Example: Consider the following two-person simultaneous game with asymmetric information Player 1 (row) knows whether he is stronger than player 2 (Colum) but player 2 does not know this Player's type use to represent information privately known by that player 55
56 Bayes Nash Equilibrium Assumption common prior over the row player's type: Column's beliefs about the row player's type are common knowledge Why column is going to disclose this information? Why row is going to believe that column is disclosing her true beliefs about his type? Row s strategy function 56
57 Bayes Nash Equilibrium 57
58 Is the common knowledge assumption realistic? Column is better off reporting that 58
59 Modeling opponents' learning of private information Simultaneous decisions Bayes Nash Equilibrium No opportunity to learn about this information Sequential decisions Perfect Bayesian equilibrium/sequential rationality Opportunity to learn from the observed decision behavior - Signaling games Models of adversaries' thinking to anticipate their decision behavior need to model opponents' learning of private information we want to keep secret how would this lead to a predictive probability distribution? 59
60 Sequential Defend-Attack model with Defender s private information Two intelligent players Defender and Attacker Sequential moves First Defender, afterwards Attacker knowing Defender s decision Defender s decision takes into account her private information The vulnerabilities and importance of sites she wants to protect The position of ground soldiers in the data ferry control problem (ITA) Attacker observes Defender s decision Attacker can infer/learn about information she wants to keep secret How to model the Attacker s learning 60
61 Influence diagram vs. game tree representation 61
62 A game theoretic analysis 62
63 A game theoretic analysis 63
64 A game theoretic solution 64
65 Supporting the Defender We weaken the common knowledge assumption The Defender s decision problem D S A?? V 65
66 Defender s solution 66
67 Predicting the Attacker s move: 67
68 Attacker action of MEU 68
69 Assessing 69
70 How to stop this hierarchy of recursive analysis? Potentially infinite analysis of nested decision models where to stop? Accommodate as much information as we can Stop when the Defender has no more information Non-informative or reference model Sensitivity analysis test 70
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