6.

896: Topics in Algorithmic Game Theory

vol. 1: Spring 2010

Constantinos Daskalakis
game theory
what we won’t
society sign study in this class…
I only mean this as a metaphor of what we
usually study in Eng.:
- central design
- cooperative components
- rich theory
game theory
what society sign
we will study in this class…
Markets
Routing in Networks

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Evolution

Social networks
Elections
 Game
Theory

- central design ?
- cooperative components ?
- rich theory ?

we will study (and sometimes question) the

algorithmic foundations of this theory
 the column player
Game Theory
1/3 1/3 1/3

1/3 0,0 -1,1 1,-1

1/3 1,-1 0,0 -1 , 1

1/3 -1,1 1 , -1 0,0

the row player

 Game Theory
1/3 1/3 1/3

1/3 0,0 -1,1 1,-1 von Neumann ’28:

exists in every 2-player
1,-1 0,0 -1 , 1 zero-sum every game!
1/3
-1,1 1 , -1 0,0
1/3

Equilibrium : a pair of randomized strategies such that given what the

column player is doing, the row player has no incentive
to change his randomized strategy, and vice versa

In this case also easy to find because of symmetry (and other reasons)
 Algorithmic Game Theory
1/3 1/3 1/3 How can we design a system
that will be launched and used
by competitive users to
1/3 0,0 -1,1 1,-1 optimize our objectives ?

1/3
1,-1 0,0 -1 , 1

1/3
-1,1 1 , -1 0,0 ?
Can we predict what will happen in a large system?
game theory says yes!

Can we efficiently predict what will happen in a large system?

Are the predictions of Game Theory likely to arise?

An overview of the class

Administration

Solution Concepts

Equilibrium Computation

Price of Anarchy

Mechanism Design
An overview of the class

Administration

Solution Concepts

Equilibrium Computation

Price of Anarchy

Mechanism Design
 Administrativia
Everybody is welcome
If registered for credit (or pass/fail):
- Scribe two lectures
- Collect 20 points in total from problems given in lecture
open questions will be 10 points, decreasing # of
points for decreasing difficulty
- Project: Survey or Research (write-up + presentation)

If just auditing: - Consider registering in the class as listeners

this will increase the chance we’ll get a TA for

the class and improve the quality of the class
An overview of the class

Administration

Solution Concepts

Equilibrium Computation

Price of Anarchy

Mechanism Design
 Battle of the Sexes
Theater! Football fine
Theater fine 1, 5 0, 0
Football! 0, 0 5, 1

Nash Equilibrium: A pair of strategies (deterministic or randomized)

such that the strategy of the row player is a Best Response to the
strategy of the column player and vice versa.
Disclaimer 1:

The Battle of the Sexes is a classical game in game theory.

That said, take the game as a metaphor of real-life examples.

 Battle of the Sexes
Theater! Football fine
Theater fine 1, 5 0, 0
Football! 0, 0 5, 1

Nash Equilibria

Nash Equilibrium: A pair of strategies (deterministic or randomized)

such that the strategy of the row player is a Best Response to the
strategy of the column player and vice versa.

(Theater fine, Theater!)

(Football!, Football fine)
Disclaimer 2:
One-shot games intend to model repeated interactions provided that there are
no strategic correlations between different occurrences of the game. If such
correlations exist, we exit the realm of one-shot games, entering the realm of
repeated games. Unless o.w. specified the games we consider in this class are
one-shot.

How can repeated occurrences occur without inter-occurrence correlations?

Imagine a population of blue players (these are the ones preferring football)
and orange players (these are those preferring theater). Members of the blue
population meet randomly with members of the orange population and need to
decide whether to watch football or theater.

What do the Nash equilibria represent?

The Nash equilibria predict what types of behaviors and (in the case of
randomized strategies) at what proportions will arise in the two populations at
the steady state of the game.
 Battle of the Sexes
Suppose now that the blue player removes a strategy from his set of strategies
and introduces another one:

Theater! Football fine

Theater fine 1, 5 0, 0
Football! 0, 0 5, 1
Theater great, I’ll
2, -1 0, 0
invite my mom

unique Equilibrium
(Football!, Football fine)

Moral of the story: The player who knows game theory managed to eliminate the
unwanted Nash equilibrium from the game.
 Rock-Paper-Scissors

1/3 1/3 1/3

1/3 0,0 -1,1 1,-1

1/3
1,-1 0,0 -1 , 1

-1,1 1 , -1 0,0
1/3

The unique Nash Equilibrium is the pair of uniform strategies.

Contrary to the battle of the sexes, in RPS randomization is

necessary to construct a Nash equilibrium.
 Rock-Paper-Scissors
Rock-Paper-Scissors Competition:

- one shot-games are very different from repeated games

- the behavior observed in the RPS competition is very different from the pair of
uniform strategies; in fact, the one-shot version of RPS does not intend to capture the
repeated interaction between the same pair of players---recall Disclaimer 2 above; rather
the intention is to model the behavior of a population of, say, students in a courtyard
participating in random occurrences of RPS games
Two-Thirds of the Average game
- k teams of players t1, t2, t3, …, tk

- each team submits a number in [0,100]

- compute

Let’s Play!
- find j, closest to

- j wins $100, -j lose

Two-Thirds of the Average game
Is it rational to play above ?
A: no (why?)

Given that no rational player will play above is it

rational to play above ?
A: no (same reasons)
…

All rational players should play 0.

The all-zero strategy is the only Nash equilibrium of this game.

Rationality versus common knowledge of rationality

historical facts: 21.6 was the winning value in a large internet-based competition
organized by the Danish newspaper Politiken. This included 19,196
people and with a prize of 5000 Danish kroner.
 Bimatrix Games
2 players: the row player & the column player
n strategies available to each player
payoff to the column player
game described by two payoff matrices for playing j when row
player plays i
G = ( Rn x n , Cn x n )

Rij, Cij

description size O(n2) payoff to the row player for playing i

when column player plays j
 Bimatrix Games

game G = ( Rn x n , Cn x n )

column player
y
row xT R y
player R, C
xT C y
x
 Nash Equilibrium
(x, y) is a Nash Equilibrium iff

row player:  x’ . xT R y  x’T R y

and same for column player

x maximizes
x R utility of row
player
OK, Nash equilibrium is stable, but does it
always exist?
 2-player Zero-Sum Games

R+C=0 1/3 1/3 1/3

1/3 0,0 -1,1 1,-1

1/3
1,-1 0,0 -1 , 1

-1,1 1 , -1 0,0
1/3

Danzig ’47
von Neumann ’28:
LP duality
For two-player zero-sum games, it always exists.
[original proof uses analysis]
 Poker

von Neuman’s predictions are in fact accurate in predicting players’

strategies in two-player poker.
But what about larger systems (more than 2 players) or systems where
players do not have directly opposite interests?
Markets
Routing in Networks

?
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Evolution

Social networks
Elections
 Modified Rock Paper Scissors
Not zero-sum any
more
25% 50% 25%

33% 0,0 -1, 1 2,-1 Is there an equilibrium now?

[that is a pair of randomized

33% strategies so that no player has
1,-1 0,0 -1,1 incentive to deviate given the other
player’s strategy ? ]
33% - 2, 1 1 , -1 0,0

John Nash ’51:

There always exists a Nash equilibrium,
regardless of the game’s properties. Nobel 1994, due to its large influence in
understanding systems of competitors…
Markets
Routing in Networks

and every other game!

Evolutionary Biology

Elections

Social Networks
 Applications…
game =
market price equilibrium

Internet packet routing

roads traffic pattern

facebook, structure of the social network

hi5, myspace, …
 Modified Rock Paper Scissors
Not zero-sum any
more
25% 50% 25%
Highly Non-
Constructive
33% 0,0 -1, 1 2,-1 Is there an equilibrium now?

[that is a pair of randomized

33% strategies so that no player has
1,-1 0,0 -1,1 incentive to deviate given the other
player’s strategy ? ]
33% - 2, 1 1 , -1 0,0

John Nash ’51: Brouwer’s Fixed

There always exists a Nash equilibrium, Point Theorem
regardless of the game’s properties.
Nobel 1994
 How can we compute a
Nash equilibrium?
- if we had an algorithm for equilibria
we could predict what behavior will
arise in a system, before the systems is
launched

- if a system is at equilibrium we can

verify this efficiently

- in this case, we can easily compute

the equilibrium, thanks to gravity!
An overview of the class

Administration

Solution Concepts

Equilibrium Computation

Price of Anarchy

Mechanism Design
 2-player zero-sum vs General Games
1928 Neumann: 1950 Nash:
- existence of min-max equilibrium - existence of an equilibrium in
in 2-player, zero-sum games; multiplayer, general-sum games;
- proof uses analysis; - Proof uses Brouwer’s fixed point
theorem;
+ Danzig ’47: equivalent to LP
duality; - intense effort for equilibrium
+ Khachiyan’79: poly-time solvable; computation algorithms:
Kuhn ’61, Mangasarian ’64, Lemke-Howson
+ a multitude of distributed algorithms ’64, Rosenmüller ’71, Wilson ’71, Scarf ’67,
converge to equilibria. Eaves ’72, Laan-Talman ’79, etc.

- Lemke-Howson: simplex-like, works with

LCP formulation;
no efficient algorithm is known after 50+
years of research.

hence, also no efficient dynamics …

Robert Aumann, 1987:
‘‘Two-player zero-sum games are one of the few areas in game theory, and indeed
in the social sciences, where a fairly sharp, unique prediction is made.’’
 the Pavlovian reaction

“Is it NP-complete to find a Nash equilibrium?”

Why should we care about the complexity of equilibria?
• First, if we believe our equilibrium theory, efficient algorithms would
enable us to make predictions:
Herbert Scarf writes…
‘‘[Due to the non-existence of efficient algorithms for computing
equilibria], general equilibrium analysis has remained at a level of
abstraction and mathematical theoretizing far removed from its
ultimate purpose as a method for the evaluation of economic policy.’’
The Computation of Economic Equilibria, 1973

• More importantly: If equilibria are supposed to model behavior, computa-

tional tractability is an important modeling prerequisite.
“If your laptop can’t find the equilibrium, then how can the market?”
Kamal Jain, Microsoft Research

N.B. computational intractability implies the non-existence of efficient

dynamics converging to equilibria; how can equilibria be universal, if such
dynamics don’t exist?
 the Pavlovian reaction

“Is it NP-complete to find a Nash equilibrium?”

two answers

1. probably not, since the problem is very different than the typical NP-
complete problem (here the solution is guaranteed to exist by Nash’s theorem)

2. moreover, it is NP-complete to solve harder problems than finding a Nash

equilibrium; e.g., the following problems are NP-complete:

- find two Nash equilibria, if more than one exist

- find a Nash equilibrium with a certain property, if any

[Gilboa, Zemel ’89; Conitzer, Sandholm ’03]

 so, how hard is it to find a single
equilibrium?
- the theory of NP-completeness does not seem
appropriate; NP-
complete
- in fact, NASH seems to lie below NP-complete;
NP
- Stay tuned! we are going to answer this
question later this semester

P
An overview of the class

Administration

Solution Concepts

Equilibrium Computation

Price of Anarchy

Mechanism Design
 Traffic Routing
Delay is 1.5 hours for
50
everybody at the unique
Nash equilibrium

Town A Town B

50
Suppose 100 drivers leave from town A driving towards town B.
Every driver wants to minimize his own travel time.
What is the traffic on the network?
In any unbalanced traffic pattern, all drivers on the most loaded
path have incentive to switch their path.
 Traffic Routing
Delay is 2 hours for
100 everybody at the unique
Nash equilibrium

Town A Town B

A benevolent mayor builds a superhighway connecting the fast

highways of the network.
What is now the traffic on the network?
No matter what the other drivers are doing it is always better for
me to follow the zig-zag path.
 Traffic Routing
50 100

A B vs A B

50

Adding a fast road on a road-network is not always a good idea!

Braess’s paradox

In the RHS network there exists a traffic pattern where all players have
delay 1.5 hours.

Price of Anarchy: measures the lost in system performance due to

free-will
 Traffic Routing
Obvious Questions:
What is the worst-case PoA in a system?

How do we design a system whose PoA is small?

In other words, what incentives can we provide to induce
performance that is close to optimal?
E.g. tolls?
An overview of the class

Administration

Solution Concepts

Equilibrium Computation

Price of Anarchy

Mechanism Design
 Auctions
- We have one item for sale.

- k parties (or bidders) are interested in the item.

- party i has value ui for the item, which is private, and we won’t to give
the item to the party with the largest value for the item (alternatively make as
much as possible from the sale).

- we ask each party for its value for the item, and based on the declared values
b1, b2,…, bk we decide who gets the item and how much she pays

-if bidder i gets the item and pays price p, her total payoff is bi - p
 Auctions
First Price Auction: Give item to bidder with largest bi, and charge him bi
clearly a bad idea to bid above your value (why?)
but you may bid below your value (and you will!)
e.g. two bidders with values u1 = $5, u2 = $100
Nash equilibrium = (b1, b2) = ($5, $5.01)

non truthful!

- bidders place different bids, depending on

opponents hence cycling etc,
- non-obvious how to play

- auctioneer does not learn people’s true values

 Auctions
Second Price Auction:
Give item to bidder with highest bid and charge him the second
largest bid.

e.g. if the bids are (b1, b2) = ($5, $10), then second bidder gets the item
and pays $5

bidding your value is a dominant strategy, regardless of what others

are doing

truthful!
 Auctions
Second Price Auction:
Give item to bidder with highest bid and charge him the second
largest bid.

e.g. if the bids are (b1, b2) = ($5, $10), then second bidder gets the item
and pays $5

bidding your value is a dominant strategy, regardless of what others

are doing

truthful!
 In conclusion
• We are going to study and question the algorithmic foundations of Game Theory

• Complexity of finding equilibria

NP-completeness theory not relevant, new theory below NP…

• Models of strategic behavior

dynamics of player interaction:
e.g. best response, exploration-exploitation,…

• System Design
robustness against strategic entities, e.g., routing

• Theory of Networks with incentives

information, graph-structure, dynamics…