epistemic logic and game theory a bird-eye vieleiss/common-knowledge-11/...a primer in game theory...

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Epistemic Logic and Game Theory A bird-eye view Olivier Roy Munich Center for Mathematical Philosophy http://olivier.amonbofis.net/ [email protected] June 27, 2011

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Page 1: Epistemic Logic and Game Theory A bird-eye vieleiss/common-knowledge-11/...A Primer in Game Theory M. Osborne and A. Rubinstein. A Course in Game Theory. MIT Press, 1994. R.B. Meyerson

Epistemic Logic andGame Theory

A bird-eye view

Olivier Roy

Munich Center for Mathematical Philosophyhttp://olivier.amonbofis.net/

[email protected]

June 27, 2011

Page 2: Epistemic Logic and Game Theory A bird-eye vieleiss/common-knowledge-11/...A Primer in Game Theory M. Osborne and A. Rubinstein. A Course in Game Theory. MIT Press, 1994. R.B. Meyerson

Plan for Today

1. A primer in Game Theory

2. “Epistemic” Game Theory

2.1 Common Knowledge of Rationality in Strategic Games2.2 Paradoxes?2.3 Rationality in Extensive games.

Page 3: Epistemic Logic and Game Theory A bird-eye vieleiss/common-knowledge-11/...A Primer in Game Theory M. Osborne and A. Rubinstein. A Course in Game Theory. MIT Press, 1994. R.B. Meyerson

A Primer in Game Theory

M. Osborne and A. Rubinstein. A Course in Game Theory. MIT Press, 1994.

R.B. Meyerson. Game Theory: Analysis of Conflict. Harvard UP, 1991.

Page 4: Epistemic Logic and Game Theory A bird-eye vieleiss/common-knowledge-11/...A Primer in Game Theory M. Osborne and A. Rubinstein. A Course in Game Theory. MIT Press, 1994. R.B. Meyerson

What is game theory about?I Situations of interdependent decisions.

• Games, of course: chess, checker, Cluedo, football...• More serious (as opposed to fun) things: markets, bargaining,

auctions, international relations, warfare...• But not only about competition: coordination, conventions,

mixed interest (individual and collective)...

I Today: Non-cooperative game theory.

J. von Neumann and O. Morgenstern. A Theory of Games and Economic Be-haviour. Princeton UP, 1944.

J. Nash. Equilibrium points in N-Persons Games. Proceedings of the NationalAcademy of Sciences of the United States of America. 36:48-49,1950.

T. Schelling. The Strategy of Conflict. Harward UP, 1960.

Page 5: Epistemic Logic and Game Theory A bird-eye vieleiss/common-knowledge-11/...A Primer in Game Theory M. Osborne and A. Rubinstein. A Course in Game Theory. MIT Press, 1994. R.B. Meyerson

What is game theory about?I Situations of interdependent decisions.

• Games, of course: chess, checker, Cluedo, football...

• More serious (as opposed to fun) things: markets, bargaining,auctions, international relations, warfare...

• But not only about competition: coordination, conventions,mixed interest (individual and collective)...

I Today: Non-cooperative game theory.

J. von Neumann and O. Morgenstern. A Theory of Games and Economic Be-haviour. Princeton UP, 1944.

J. Nash. Equilibrium points in N-Persons Games. Proceedings of the NationalAcademy of Sciences of the United States of America. 36:48-49,1950.

T. Schelling. The Strategy of Conflict. Harward UP, 1960.

Page 6: Epistemic Logic and Game Theory A bird-eye vieleiss/common-knowledge-11/...A Primer in Game Theory M. Osborne and A. Rubinstein. A Course in Game Theory. MIT Press, 1994. R.B. Meyerson

What is game theory about?I Situations of interdependent decisions.

• Games, of course: chess, checker, Cluedo, football...• More serious (as opposed to fun) things: markets, bargaining,

auctions, international relations, warfare...

• But not only about competition: coordination, conventions,mixed interest (individual and collective)...

I Today: Non-cooperative game theory.

J. von Neumann and O. Morgenstern. A Theory of Games and Economic Be-haviour. Princeton UP, 1944.

J. Nash. Equilibrium points in N-Persons Games. Proceedings of the NationalAcademy of Sciences of the United States of America. 36:48-49,1950.

T. Schelling. The Strategy of Conflict. Harward UP, 1960.

Page 7: Epistemic Logic and Game Theory A bird-eye vieleiss/common-knowledge-11/...A Primer in Game Theory M. Osborne and A. Rubinstein. A Course in Game Theory. MIT Press, 1994. R.B. Meyerson

What is game theory about?I Situations of interdependent decisions.

• Games, of course: chess, checker, Cluedo, football...• More serious (as opposed to fun) things: markets, bargaining,

auctions, international relations, warfare...• But not only about competition: coordination, conventions,

mixed interest (individual and collective)...

I Today: Non-cooperative game theory.

J. von Neumann and O. Morgenstern. A Theory of Games and Economic Be-haviour. Princeton UP, 1944.

J. Nash. Equilibrium points in N-Persons Games. Proceedings of the NationalAcademy of Sciences of the United States of America. 36:48-49,1950.

T. Schelling. The Strategy of Conflict. Harward UP, 1960.

Page 8: Epistemic Logic and Game Theory A bird-eye vieleiss/common-knowledge-11/...A Primer in Game Theory M. Osborne and A. Rubinstein. A Course in Game Theory. MIT Press, 1994. R.B. Meyerson

What is game theory about?I Situations of interdependent decisions.

• Games, of course: chess, checker, Cluedo, football...• More serious (as opposed to fun) things: markets, bargaining,

auctions, international relations, warfare...• But not only about competition: coordination, conventions,

mixed interest (individual and collective)...

I Today: Non-cooperative game theory.

J. von Neumann and O. Morgenstern. A Theory of Games and Economic Be-haviour. Princeton UP, 1944.

J. Nash. Equilibrium points in N-Persons Games. Proceedings of the NationalAcademy of Sciences of the United States of America. 36:48-49,1950.

T. Schelling. The Strategy of Conflict. Harward UP, 1960.

Page 9: Epistemic Logic and Game Theory A bird-eye vieleiss/common-knowledge-11/...A Primer in Game Theory M. Osborne and A. Rubinstein. A Course in Game Theory. MIT Press, 1994. R.B. Meyerson

Ann/Bob Restaurant A Restaurant B

Restaurant A 1, 1 0, 0

Restaurant B 0, 0 1, 1

I Games in “Strategic” Forms:

• Players.• Actions/strategies.• Payoffs/utilities.

Page 10: Epistemic Logic and Game Theory A bird-eye vieleiss/common-knowledge-11/...A Primer in Game Theory M. Osborne and A. Rubinstein. A Course in Game Theory. MIT Press, 1994. R.B. Meyerson

Ann/Bob Restaurant A Restaurant B

Restaurant A 1, 1 0, 0

Restaurant B 0, 0 1, 1

I Games in “Strategic” Forms:

• Players.

• Actions/strategies.• Payoffs/utilities.

Page 11: Epistemic Logic and Game Theory A bird-eye vieleiss/common-knowledge-11/...A Primer in Game Theory M. Osborne and A. Rubinstein. A Course in Game Theory. MIT Press, 1994. R.B. Meyerson

Ann/Bob Restaurant A Restaurant B

Restaurant A 1, 1 0, 0

Restaurant B 0, 0 1, 1

I Games in “Strategic” Forms:

• Players.• Actions/strategies.

• Payoffs/utilities.

Page 12: Epistemic Logic and Game Theory A bird-eye vieleiss/common-knowledge-11/...A Primer in Game Theory M. Osborne and A. Rubinstein. A Course in Game Theory. MIT Press, 1994. R.B. Meyerson

Ann/Bob Restaurant A Restaurant B

Restaurant A 1, 1 0, 0

Restaurant B 0, 0 1, 1

I Games in “Strategic” Forms:

• Players.• Actions/strategies.

• Payoffs/utilities.

Page 13: Epistemic Logic and Game Theory A bird-eye vieleiss/common-knowledge-11/...A Primer in Game Theory M. Osborne and A. Rubinstein. A Course in Game Theory. MIT Press, 1994. R.B. Meyerson

Ann/Bob Restaurant A Restaurant B

Restaurant A 1, 1 0, 0

Restaurant B 0, 0 1, 1

I Games in “Strategic” Forms:

• Players.• Actions/strategies.

• Payoffs/utilities.

Page 14: Epistemic Logic and Game Theory A bird-eye vieleiss/common-knowledge-11/...A Primer in Game Theory M. Osborne and A. Rubinstein. A Course in Game Theory. MIT Press, 1994. R.B. Meyerson

Ann/Bob Restaurant A Restaurant B

Restaurant A 1, 1 0, 0

Restaurant B 0, 0 1, 1

I Games in “Strategic” Forms:

• Players.• Actions/strategies.

• Payoffs/utilities.

Page 15: Epistemic Logic and Game Theory A bird-eye vieleiss/common-knowledge-11/...A Primer in Game Theory M. Osborne and A. Rubinstein. A Course in Game Theory. MIT Press, 1994. R.B. Meyerson

Ann/Bob Restaurant A Restaurant B

Restaurant A 1, 1 0, 0

Restaurant B 0, 0 1, 1

I Games in “Strategic” Forms:

• Players.• Actions/strategies.

• Payoffs/utilities.

Page 16: Epistemic Logic and Game Theory A bird-eye vieleiss/common-knowledge-11/...A Primer in Game Theory M. Osborne and A. Rubinstein. A Course in Game Theory. MIT Press, 1994. R.B. Meyerson

Ann/Bob Restaurant A Restaurant B

Restaurant A 1, 1 0, 0

Restaurant B 0, 0 1, 1

I Games in “Strategic” Forms:

• Players.• Actions/strategies.

• Payoffs/utilities.

Page 17: Epistemic Logic and Game Theory A bird-eye vieleiss/common-knowledge-11/...A Primer in Game Theory M. Osborne and A. Rubinstein. A Course in Game Theory. MIT Press, 1994. R.B. Meyerson

Ann/Bob Restaurant A Restaurant B

Restaurant A 1, 1 0, 0

Restaurant B 0, 0 1, 1

I Games in “Strategic” Forms:

• Players.• Actions/strategies.• Payoffs/utilities.

Page 18: Epistemic Logic and Game Theory A bird-eye vieleiss/common-knowledge-11/...A Primer in Game Theory M. Osborne and A. Rubinstein. A Course in Game Theory. MIT Press, 1994. R.B. Meyerson

Ann/Bob Restaurant A Restaurant B

Restaurant A 1, 1 0, 0

Restaurant B 0, 0 1, 1

I Games in “Strategic” Forms:

• Players.• Actions/strategies.• Payoffs/utilities.

Page 19: Epistemic Logic and Game Theory A bird-eye vieleiss/common-knowledge-11/...A Primer in Game Theory M. Osborne and A. Rubinstein. A Course in Game Theory. MIT Press, 1994. R.B. Meyerson

Cooperate Defect

Cooperate 3, 3 0, 4

Defect 4, 0 1, 1

I The infamous Prisoner’s Dilemma.

• Examples: Traffic jams, arm race, climate change...

Page 20: Epistemic Logic and Game Theory A bird-eye vieleiss/common-knowledge-11/...A Primer in Game Theory M. Osborne and A. Rubinstein. A Course in Game Theory. MIT Press, 1994. R.B. Meyerson

Restaurant A Restaurant B

Restaurant A 1, 1 0, 0

Restaurant B 0, 0 1, 1

I Coordination game.

• Coordination, of course, but also conventions, e.g. language.

Page 21: Epistemic Logic and Game Theory A bird-eye vieleiss/common-knowledge-11/...A Primer in Game Theory M. Osborne and A. Rubinstein. A Course in Game Theory. MIT Press, 1994. R.B. Meyerson

Restaurant

A

Restaurant

B

Restaurant

A 1, 1 0, 0

Restaurant

B 0, 0 1, 1

I Coordination game.

• Coordination, of course, but also conventions, e.g. language.

Page 22: Epistemic Logic and Game Theory A bird-eye vieleiss/common-knowledge-11/...A Primer in Game Theory M. Osborne and A. Rubinstein. A Course in Game Theory. MIT Press, 1994. R.B. Meyerson

(0, 0)

(2, 2)

Bob

Bob

Bob

Ann

Ann

Hi

A

B

a

b

Hi

Lo

Lo

(1, 1)

(1, 1)

(0, 0)

I Games in Extensive Forms

• Same ingredients: players, actions, strategies, payoffs.

• Prefect and imperfect information.

Page 23: Epistemic Logic and Game Theory A bird-eye vieleiss/common-knowledge-11/...A Primer in Game Theory M. Osborne and A. Rubinstein. A Course in Game Theory. MIT Press, 1994. R.B. Meyerson

(0, 0)

(2, 2)

Bob

Bob

Bob

Ann

Ann

Hi

A

B

a

b

Hi

Lo

Lo

(1, 1)

(1, 1)

(0, 0)

I Games in Extensive Forms

• Same ingredients: players, actions, strategies, payoffs.• Prefect and imperfect information.

Page 24: Epistemic Logic and Game Theory A bird-eye vieleiss/common-knowledge-11/...A Primer in Game Theory M. Osborne and A. Rubinstein. A Course in Game Theory. MIT Press, 1994. R.B. Meyerson

(0,0)

(2,2)

Bob

Bob

Bob

Ann

Ann

Hi

A

B

a

b

Hi

Lo

Lo

(1,1)

(1,1)

(0,0)

I Games in Extensive Forms

• Same ingredients: players, actions, strategies, payoffs.• Prefect and imperfect information.

Page 25: Epistemic Logic and Game Theory A bird-eye vieleiss/common-knowledge-11/...A Primer in Game Theory M. Osborne and A. Rubinstein. A Course in Game Theory. MIT Press, 1994. R.B. Meyerson

The big question

C D

C 3, 3 0, 4

D 4, 0 1, 1

(0,0)

(2,2)

Bob

Bob

Bob

Ann

Ann

Hi

A

B

a

b

Hi

Lo

Lo

(1,1)

(1,1)

(0,0)

What will/should (rational) players do?I The classical Answer: “Solution Concepts”.

• Elimination of Strictly dominated strategies, Nash equilibrium,backward induction...

Page 26: Epistemic Logic and Game Theory A bird-eye vieleiss/common-knowledge-11/...A Primer in Game Theory M. Osborne and A. Rubinstein. A Course in Game Theory. MIT Press, 1994. R.B. Meyerson

Iterated Elimination of Strictly Dominated Strategies(IESDS)

Ann/ Bob L R

T 1, 1 1, 0

B 0, 0 0, 1

Strictly dominated strategy: one that gives you a worst payoff thananother (or a mixture of others) whatever happen.

1. Start with a game;

2. Eliminate all strictly dominated strategies;

3. Look at the reduced game;

4. Eliminate all strictly dominated strategies here;

5. Repeat 3 and 4 until you don’t eliminate anything.

Page 27: Epistemic Logic and Game Theory A bird-eye vieleiss/common-knowledge-11/...A Primer in Game Theory M. Osborne and A. Rubinstein. A Course in Game Theory. MIT Press, 1994. R.B. Meyerson

Iterated Elimination of Strictly Dominated Strategies(IESDS)

Ann/ Bob L R

T 1, 1 1, 0

B 0, 0 0, 1

Strictly dominated strategy: one that gives you a worst payoff thananother (or a mixture of others) whatever happen.

1. Start with a game;

2. Eliminate all strictly dominated strategies;

3. Look at the reduced game;

4. Eliminate all strictly dominated strategies here;

5. Repeat 3 and 4 until you don’t eliminate anything.

Page 28: Epistemic Logic and Game Theory A bird-eye vieleiss/common-knowledge-11/...A Primer in Game Theory M. Osborne and A. Rubinstein. A Course in Game Theory. MIT Press, 1994. R.B. Meyerson

Iterated Elimination of Strictly Dominated Strategies(IESDS)

Ann/ Bob L R

T 1, 1 1, 0

B 0, 0 0, 1

Strictly dominated strategy: one that gives you a worst payoff thananother (or a mixture of others) whatever happen.

1. Start with a game;

2. Eliminate all strictly dominated strategies;

3. Look at the reduced game;

4. Eliminate all strictly dominated strategies here;

5. Repeat 3 and 4 until you don’t eliminate anything.

Page 29: Epistemic Logic and Game Theory A bird-eye vieleiss/common-knowledge-11/...A Primer in Game Theory M. Osborne and A. Rubinstein. A Course in Game Theory. MIT Press, 1994. R.B. Meyerson

Iterated Elimination of Strictly Dominated Strategies(IESDS)

Ann/ Bob L R

T 1, 1 1, 0

B 0, 0 0, 1

Strictly dominated strategy: one that gives you a worst payoff thananother (or a mixture of others) whatever happen.

1. Start with a game;

2. Eliminate all strictly dominated strategies;

3. Look at the reduced game;

4. Eliminate all strictly dominated strategies here;

5. Repeat 3 and 4 until you don’t eliminate anything.

Page 30: Epistemic Logic and Game Theory A bird-eye vieleiss/common-knowledge-11/...A Primer in Game Theory M. Osborne and A. Rubinstein. A Course in Game Theory. MIT Press, 1994. R.B. Meyerson

Iterated Elimination of Strictly Dominated Strategies(IESDS)

Ann/ Bob L R

T 1, 1 1, 0

B 0, 0 0, 1

Strictly dominated strategy: one that gives you a worst payoff thananother (or a mixture of others) whatever happen.

1. Start with a game;

2. Eliminate all strictly dominated strategies;

3. Look at the reduced game;

4. Eliminate all strictly dominated strategies here;

5. Repeat 3 and 4 until you don’t eliminate anything.

Page 31: Epistemic Logic and Game Theory A bird-eye vieleiss/common-knowledge-11/...A Primer in Game Theory M. Osborne and A. Rubinstein. A Course in Game Theory. MIT Press, 1994. R.B. Meyerson

Nash Equilibrium

A B

A 1, 1 0, 0

B 0, 0 1, 1

A profile in which no one would do better by choosing otherwise,given what the others are doing.

Page 32: Epistemic Logic and Game Theory A bird-eye vieleiss/common-knowledge-11/...A Primer in Game Theory M. Osborne and A. Rubinstein. A Course in Game Theory. MIT Press, 1994. R.B. Meyerson

Nash Equilibrium

A B

A 1, 1 0, 0

B 0, 0 1, 1

A profile in which no one would do better by choosing otherwise,given what the others are doing.

Page 33: Epistemic Logic and Game Theory A bird-eye vieleiss/common-knowledge-11/...A Primer in Game Theory M. Osborne and A. Rubinstein. A Course in Game Theory. MIT Press, 1994. R.B. Meyerson

Nash Equilibrium

A B

A 1, 1 0, 0

B 0, 0 1, 1

A profile in which no one would do better by choosing otherwise,given what the others are doing.

Page 34: Epistemic Logic and Game Theory A bird-eye vieleiss/common-knowledge-11/...A Primer in Game Theory M. Osborne and A. Rubinstein. A Course in Game Theory. MIT Press, 1994. R.B. Meyerson

Nash Equilibrium

A B

A 1, 1 0, 0

B 0, 0 1, 1

A profile in which no one would do better by choosing otherwise,given what the others are doing.

Page 35: Epistemic Logic and Game Theory A bird-eye vieleiss/common-knowledge-11/...A Primer in Game Theory M. Osborne and A. Rubinstein. A Course in Game Theory. MIT Press, 1994. R.B. Meyerson

Backward Induction

(0, 0)

(3, 3)

Bob

Bob

Ann

Hi

A

B

Hi

Lo

Lo

(2, 2)

(1, 1)

Page 36: Epistemic Logic and Game Theory A bird-eye vieleiss/common-knowledge-11/...A Primer in Game Theory M. Osborne and A. Rubinstein. A Course in Game Theory. MIT Press, 1994. R.B. Meyerson

Backward Induction

(0, 0)

(3, 3)

Bob

Bob

Ann

Ann

Hi

A

B

Hi

Lo

Lo

(2, 2)

(1, 1)

Page 37: Epistemic Logic and Game Theory A bird-eye vieleiss/common-knowledge-11/...A Primer in Game Theory M. Osborne and A. Rubinstein. A Course in Game Theory. MIT Press, 1994. R.B. Meyerson

Backward Induction

(0, 0)

(3, 3)

Bob

Bob

Ann

Ann

Hi

A

B

Hi

Lo

Lo

(2, 2)

(1, 1)

Page 38: Epistemic Logic and Game Theory A bird-eye vieleiss/common-knowledge-11/...A Primer in Game Theory M. Osborne and A. Rubinstein. A Course in Game Theory. MIT Press, 1994. R.B. Meyerson

Backward Induction

(0, 0)

(3, 3)

Bob

Bob

Ann

Ann

Hi

A

B

Hi

Lo

Lo

(2, 2)

(1, 1)

Page 39: Epistemic Logic and Game Theory A bird-eye vieleiss/common-knowledge-11/...A Primer in Game Theory M. Osborne and A. Rubinstein. A Course in Game Theory. MIT Press, 1994. R.B. Meyerson

Epistemic Game Theory

R.Aumann, Interactive Epistemology (I): Knowledge. International Journal ofGame Theory. 28:263-300, 1999.

A. Brandenburger, The power of paradox: some recent developments in interac-tive epistemology. International Journal of Game Theory. 35:465-492, 2007.

Page 40: Epistemic Logic and Game Theory A bird-eye vieleiss/common-knowledge-11/...A Primer in Game Theory M. Osborne and A. Rubinstein. A Course in Game Theory. MIT Press, 1994. R.B. Meyerson

Restaurant A Restaurant B

Restaurant A 1, 1 0, 0

Restaurant B 0, 0 1, 1

Let’s take a step back:

I You’re Ann. What should you do?

• Depends on what you think Bob will do...

First-order information.

• ... but this depends on what you think Bob thinks you’ll do...• ... and this depends on what you think Bob thinks you think

he’ll do...• and so on.

Higher-order information!

Page 41: Epistemic Logic and Game Theory A bird-eye vieleiss/common-knowledge-11/...A Primer in Game Theory M. Osborne and A. Rubinstein. A Course in Game Theory. MIT Press, 1994. R.B. Meyerson

Restaurant A Restaurant B

Restaurant A 1, 1 0, 0

Restaurant B 0, 0 1, 1

Let’s take a step back:I You’re Ann. What should you do?

• Depends on what you think Bob will do...

First-order information.

• ... but this depends on what you think Bob thinks you’ll do...• ... and this depends on what you think Bob thinks you think

he’ll do...• and so on.

Higher-order information!

Page 42: Epistemic Logic and Game Theory A bird-eye vieleiss/common-knowledge-11/...A Primer in Game Theory M. Osborne and A. Rubinstein. A Course in Game Theory. MIT Press, 1994. R.B. Meyerson

Restaurant A Restaurant B

Restaurant A 1, 1 0, 0

Restaurant B 0, 0 1, 1

Let’s take a step back:I You’re Ann. What should you do?

• Depends on what you think Bob will do...

First-order information.• ... but this depends on what you think Bob thinks you’ll do...• ... and this depends on what you think Bob thinks you think

he’ll do...• and so on.

Higher-order information!

Page 43: Epistemic Logic and Game Theory A bird-eye vieleiss/common-knowledge-11/...A Primer in Game Theory M. Osborne and A. Rubinstein. A Course in Game Theory. MIT Press, 1994. R.B. Meyerson

Restaurant A Restaurant B

Restaurant A 1, 1 0, 0

Restaurant B 0, 0 1, 1

Let’s take a step back:I You’re Ann. What should you do?

• Depends on what you think Bob will do...

First-order information.• ... but this depends on what you think Bob thinks you’ll do...• ... and this depends on what you think Bob thinks you think

he’ll do...• and so on.

Higher-order information!

Page 44: Epistemic Logic and Game Theory A bird-eye vieleiss/common-knowledge-11/...A Primer in Game Theory M. Osborne and A. Rubinstein. A Course in Game Theory. MIT Press, 1994. R.B. Meyerson

Restaurant A Restaurant B

Restaurant A 1, 1 0, 0

Restaurant B 0, 0 1, 1

Let’s take a step back:I You’re Ann. What should you do?

• Depends on what you think Bob will do...

First-order information.

• ... but this depends on what you think Bob thinks you’ll do...• ... and this depends on what you think Bob thinks you think

he’ll do...• and so on.

Higher-order information!

Page 45: Epistemic Logic and Game Theory A bird-eye vieleiss/common-knowledge-11/...A Primer in Game Theory M. Osborne and A. Rubinstein. A Course in Game Theory. MIT Press, 1994. R.B. Meyerson

Restaurant A Restaurant B

Restaurant A 1, 1 0, 0

Restaurant B 0, 0 1, 1

Let’s take a step back:I You’re Ann. What should you do?

• Depends on what you think Bob will do...First-order information.

• ... but this depends on what you think Bob thinks you’ll do...• ... and this depends on what you think Bob thinks you think

he’ll do...• and so on.

Higher-order information!

Page 46: Epistemic Logic and Game Theory A bird-eye vieleiss/common-knowledge-11/...A Primer in Game Theory M. Osborne and A. Rubinstein. A Course in Game Theory. MIT Press, 1994. R.B. Meyerson

Restaurant A Restaurant B

Restaurant A 1, 1 0, 0

Restaurant B 0, 0 1, 1

The main idea:

I What should you do in a game?

• Do what’s best...

Choice Rule (Decision Theory)

• given your information.

First AND higher-order.

I This is where epistemic logic comes into play. (knowledgeabout knowledge, beliefs about beliefs, common knowledge,common beliefs...)

Page 47: Epistemic Logic and Game Theory A bird-eye vieleiss/common-knowledge-11/...A Primer in Game Theory M. Osborne and A. Rubinstein. A Course in Game Theory. MIT Press, 1994. R.B. Meyerson

Restaurant A Restaurant B

Restaurant A 1, 1 0, 0

Restaurant B 0, 0 1, 1

The main idea:I What should you do in a game?

• Do what’s best...Choice Rule (Decision Theory)

• given your information.

First AND higher-order.

I This is where epistemic logic comes into play. (knowledgeabout knowledge, beliefs about beliefs, common knowledge,common beliefs...)

Page 48: Epistemic Logic and Game Theory A bird-eye vieleiss/common-knowledge-11/...A Primer in Game Theory M. Osborne and A. Rubinstein. A Course in Game Theory. MIT Press, 1994. R.B. Meyerson

Restaurant A Restaurant B

Restaurant A 1, 1 0, 0

Restaurant B 0, 0 1, 1

The main idea:I What should you do in a game?

• Do what’s best...Choice Rule (Decision Theory)

• given your information.First AND higher-order.

I This is where epistemic logic comes into play. (knowledgeabout knowledge, beliefs about beliefs, common knowledge,common beliefs...)

Page 49: Epistemic Logic and Game Theory A bird-eye vieleiss/common-knowledge-11/...A Primer in Game Theory M. Osborne and A. Rubinstein. A Course in Game Theory. MIT Press, 1994. R.B. Meyerson

Restaurant A Restaurant B

Restaurant A 1, 1 0, 0

Restaurant B 0, 0 1, 1

The main idea:I What should you do in a game?

• Do what’s best...Choice Rule (Decision Theory)

• given your information.First AND higher-order.

I This is where epistemic logic comes into play. (knowledgeabout knowledge, beliefs about beliefs, common knowledge,common beliefs...)

Page 50: Epistemic Logic and Game Theory A bird-eye vieleiss/common-knowledge-11/...A Primer in Game Theory M. Osborne and A. Rubinstein. A Course in Game Theory. MIT Press, 1994. R.B. Meyerson

Game G

Strategy Space

Game Model

Rat ¬Rat

b

a

b′

a′

Page 51: Epistemic Logic and Game Theory A bird-eye vieleiss/common-knowledge-11/...A Primer in Game Theory M. Osborne and A. Rubinstein. A Course in Game Theory. MIT Press, 1994. R.B. Meyerson

Game G

Strategy Space

Game Model

Rat ¬Rat

b

a

b′

a′

Page 52: Epistemic Logic and Game Theory A bird-eye vieleiss/common-knowledge-11/...A Primer in Game Theory M. Osborne and A. Rubinstein. A Course in Game Theory. MIT Press, 1994. R.B. Meyerson

Game G

Strategy Space

Game Model

Rat ¬Rat

b

a

b′

a′

Page 53: Epistemic Logic and Game Theory A bird-eye vieleiss/common-knowledge-11/...A Primer in Game Theory M. Osborne and A. Rubinstein. A Course in Game Theory. MIT Press, 1994. R.B. Meyerson

Game G

Strategy Space

Game Model

Rat ¬Rat

b

a

b′

a′

Page 54: Epistemic Logic and Game Theory A bird-eye vieleiss/common-knowledge-11/...A Primer in Game Theory M. Osborne and A. Rubinstein. A Course in Game Theory. MIT Press, 1994. R.B. Meyerson

Game G

Strategy Space

Game Model

Rat ¬Rat

b

a

b′

a′

Page 55: Epistemic Logic and Game Theory A bird-eye vieleiss/common-knowledge-11/...A Primer in Game Theory M. Osborne and A. Rubinstein. A Course in Game Theory. MIT Press, 1994. R.B. Meyerson

Example 1: Common knowledge of Rationality and IESDS.

D. Bernheim. Rationalizable strategic behavior. Econometrica, 52:1007-1028,1984.

D. Pearce. Rationalizable strategic behavior and the problem of perfection.Econometrica, 52:1029-1050, 1984.

A. Brandenburger and E. Dekel. Rationalizability and correlated equilibria.Econometrica, 55:1391-1402, 1987.

Page 56: Epistemic Logic and Game Theory A bird-eye vieleiss/common-knowledge-11/...A Primer in Game Theory M. Osborne and A. Rubinstein. A Course in Game Theory. MIT Press, 1994. R.B. Meyerson

Ann/ Bob L R

T 1, 1 1, 0

B 0, 0 0, 1

I Rationality and Common Belief in Rationality imply...

• If Ann is rational then she will not play B.(Rational here = not choosing strictly dominated strategies)

• If Bob believes that Ann is rational then he will not play R.

I Here Rationality and one level of belief about rationality givesus IESDS.

I In general: Rationality and Common Belief in Rationalityimply IESDS.

Page 57: Epistemic Logic and Game Theory A bird-eye vieleiss/common-knowledge-11/...A Primer in Game Theory M. Osborne and A. Rubinstein. A Course in Game Theory. MIT Press, 1994. R.B. Meyerson

Ann/ Bob L R

T 1, 1 1, 0

B 0, 0 0, 1

I Rationality and Common Belief in Rationality imply...

• If Ann is rational then she will not play B.(Rational here = not choosing strictly dominated strategies)

• If Bob believes that Ann is rational then he will not play R.

I Here Rationality and one level of belief about rationality givesus IESDS.

I In general: Rationality and Common Belief in Rationalityimply IESDS.

Page 58: Epistemic Logic and Game Theory A bird-eye vieleiss/common-knowledge-11/...A Primer in Game Theory M. Osborne and A. Rubinstein. A Course in Game Theory. MIT Press, 1994. R.B. Meyerson

Ann/ Bob L R

T 1, 1 1, 0

B 0, 0 0, 1

I Rationality and Common Belief in Rationality imply...

• If Ann is rational then she will not play B.(Rational here = not choosing strictly dominated strategies)

• If Bob believes that Ann is rational then he will not play R.

I Here Rationality and one level of belief about rationality givesus IESDS.

I In general: Rationality and Common Belief in Rationalityimply IESDS.

Page 59: Epistemic Logic and Game Theory A bird-eye vieleiss/common-knowledge-11/...A Primer in Game Theory M. Osborne and A. Rubinstein. A Course in Game Theory. MIT Press, 1994. R.B. Meyerson

Ann/ Bob L R

T 1, 1 1, 0

B 0, 0 0, 1

I Rationality and Common Belief in Rationality imply...

• If Ann is rational then she will not play B.(Rational here = not choosing strictly dominated strategies)

• If Bob believes that Ann is rational then he will not play R.

I Here Rationality and one level of belief about rationality givesus IESDS.

I In general: Rationality and Common Belief in Rationalityimply IESDS.

Page 60: Epistemic Logic and Game Theory A bird-eye vieleiss/common-knowledge-11/...A Primer in Game Theory M. Osborne and A. Rubinstein. A Course in Game Theory. MIT Press, 1994. R.B. Meyerson

Ann/ Bob L R

T 1, 1 1, 0

B 0, 0 0, 1

I Rationality and Common Belief in Rationality imply...

• If Ann is rational then she will not play B.(Rational here = not choosing strictly dominated strategies)

• If Bob believes that Ann is rational then he will not play R.

I Here Rationality and one level of belief about rationality givesus IESDS.

I In general: Rationality and Common Belief in Rationalityimply IESDS.

Page 61: Epistemic Logic and Game Theory A bird-eye vieleiss/common-knowledge-11/...A Primer in Game Theory M. Osborne and A. Rubinstein. A Course in Game Theory. MIT Press, 1994. R.B. Meyerson

Paradox (?) of admissibility

L. Samuelson. Dominated Strategies and Common Knowledge. Games andEconomic Behavior (1992).

A. Brandenburger and A. Friedenberg and H. J. Keisler. Admissibility in Games.Econometrica, 76:307-352, 2008.

Page 62: Epistemic Logic and Game Theory A bird-eye vieleiss/common-knowledge-11/...A Primer in Game Theory M. Osborne and A. Rubinstein. A Course in Game Theory. MIT Press, 1994. R.B. Meyerson

Admissibility a.k.a. weak dominance.

Bob

Ann

T L R

T 1,1 1,0 U

B 1,0 0,1 U

T weakly dominates B

Page 63: Epistemic Logic and Game Theory A bird-eye vieleiss/common-knowledge-11/...A Primer in Game Theory M. Osborne and A. Rubinstein. A Course in Game Theory. MIT Press, 1994. R.B. Meyerson

Admissibility a.k.a. weak dominance.

Bob

Ann

T L R

T 1,1 1,0 U

B 1,0 0,1 U

T weakly dominates B

Page 64: Epistemic Logic and Game Theory A bird-eye vieleiss/common-knowledge-11/...A Primer in Game Theory M. Osborne and A. Rubinstein. A Course in Game Theory. MIT Press, 1994. R.B. Meyerson

Admissibility a.k.a. weak dominance.

Bob

Ann

T L R

T 1,1 1,0 U

B 1,0 0,1 U

Then L strictly dominates R.

Page 65: Epistemic Logic and Game Theory A bird-eye vieleiss/common-knowledge-11/...A Primer in Game Theory M. Osborne and A. Rubinstein. A Course in Game Theory. MIT Press, 1994. R.B. Meyerson

Admissibility a.k.a. weak dominance.

Bob

Ann

T L R

T 1,1 1,0 U

B 1,0 0,1 U

The Iterated Admissibility set

Page 66: Epistemic Logic and Game Theory A bird-eye vieleiss/common-knowledge-11/...A Primer in Game Theory M. Osborne and A. Rubinstein. A Course in Game Theory. MIT Press, 1994. R.B. Meyerson

Admissibility a.k.a. weak dominance.

Bob

Ann

T L R

T 1,1 1,0 U

B 1,0 0,1 U

But, now what is the reason for not playing B?

Page 67: Epistemic Logic and Game Theory A bird-eye vieleiss/common-knowledge-11/...A Primer in Game Theory M. Osborne and A. Rubinstein. A Course in Game Theory. MIT Press, 1994. R.B. Meyerson

Admissibility a.k.a. weak dominance.

Paradox?

I Admissibility is equivalent to being a best response whennothing is ruled out.

I But common belief in admissibility does just that, ruling outstrategies.

Solution:I Belief revision.

• Be more subtle about that “ruling out” means. Here:considering very (infinitely) implausible.

• But surprise is possible! (things are not ruled out in a “hard”way).

• ... and they should not! Players still have to be prepared foranything... even the infinitely improbable.

Page 68: Epistemic Logic and Game Theory A bird-eye vieleiss/common-knowledge-11/...A Primer in Game Theory M. Osborne and A. Rubinstein. A Course in Game Theory. MIT Press, 1994. R.B. Meyerson

Rationality in Extensive Games

R.J. Aumann. Backward Induction and Common Knowledge of Rationality.Games and Economic Behavior, 8:121-133, 1994.

R. Stalnaker, Knowledge, Belief and Counterfactual Reasoning in Games. Eco-nomics and Philosopy. 12(02):133-163, 1996.

J. Halpern, Substantive Rationality and Backward Induction. Games and Eco-nomic Behavior. 37(02):425-435, 2001.

Page 69: Epistemic Logic and Game Theory A bird-eye vieleiss/common-knowledge-11/...A Primer in Game Theory M. Osborne and A. Rubinstein. A Course in Game Theory. MIT Press, 1994. R.B. Meyerson

(0, 0)

(3, 3)

Bob

Bob

Ann

Hi

A

B

Hi

Lo

Lo

(2, 2)

(1, 1)

I If Bob is rational then he will choose A.I If Ann is rational and believes that Bob is rational then she’ll

choose Hi .I If Bob is rational and believes that (Ann is rational and

believes that he is rational), then she’ll play Hi .

Page 70: Epistemic Logic and Game Theory A bird-eye vieleiss/common-knowledge-11/...A Primer in Game Theory M. Osborne and A. Rubinstein. A Course in Game Theory. MIT Press, 1994. R.B. Meyerson

(0, 0)

(3, 3)

Bob

Bob

Ann

Ann

Hi

A

B

Hi

Lo

Lo

(2, 2)

(1, 1)

I If Bob is rational then he will choose A.

I If Ann is rational and believes that Bob is rational then she’llchoose Hi .

I If Bob is rational and believes that (Ann is rational andbelieves that he is rational), then she’ll play Hi .

Page 71: Epistemic Logic and Game Theory A bird-eye vieleiss/common-knowledge-11/...A Primer in Game Theory M. Osborne and A. Rubinstein. A Course in Game Theory. MIT Press, 1994. R.B. Meyerson

(0, 0)

(3, 3)

Bob

Bob

Ann

Ann

Hi

A

B

Hi

Lo

Lo

(2, 2)

(1, 1)

I If Bob is rational then he will choose A.

I If Ann is rational and believes that Bob is rational then she’llchoose Hi .

I If Bob is rational and believes that (Ann is rational andbelieves that he is rational), then she’ll play Hi .

Page 72: Epistemic Logic and Game Theory A bird-eye vieleiss/common-knowledge-11/...A Primer in Game Theory M. Osborne and A. Rubinstein. A Course in Game Theory. MIT Press, 1994. R.B. Meyerson

(0, 0)

(3, 3)

Bob

Bob

Ann

Ann

Hi

A

B

Hi

Lo

Lo

(2, 2)

(1, 1)

I If Bob is rational then he will choose A.

I If Ann is rational and believes that Bob is rational then she’llchoose Hi .

I If Bob is rational and believes that (Ann is rational andbelieves that he is rational), then she’ll play Hi .

Page 73: Epistemic Logic and Game Theory A bird-eye vieleiss/common-knowledge-11/...A Primer in Game Theory M. Osborne and A. Rubinstein. A Course in Game Theory. MIT Press, 1994. R.B. Meyerson

(0, 0)

(3, 3)

Bob

Bob

Ann

Ann

Hi

A

B

Hi

Lo

Lo

(2, 2)

(1, 1)

I In general: rationality and common belief in rationality impliesbackward induction.

I Well...

Page 74: Epistemic Logic and Game Theory A bird-eye vieleiss/common-knowledge-11/...A Primer in Game Theory M. Osborne and A. Rubinstein. A Course in Game Theory. MIT Press, 1994. R.B. Meyerson

(0, 0)

(3, 3)

Bob

Bob

Ann

Ann

Hi

A

B

Hi

Lo

Lo

(2, 2)

(1, 1)

I In general: rationality and common belief in rationality impliesbackward induction.

I Well...

Page 75: Epistemic Logic and Game Theory A bird-eye vieleiss/common-knowledge-11/...A Primer in Game Theory M. Osborne and A. Rubinstein. A Course in Game Theory. MIT Press, 1994. R.B. Meyerson

(0, 4)

(3, 3)

Bob

Bob

Ann

Ann

Hi

A

B

Hi

Lo

Lo

(1, 1)

(4, 0)

I The “centipede” game.

I What should Ann believe about Bob if she gets to play?!?

I If she can revise her beliefs about Bob’s rationality, thenbackward induction is no more ensured.

Page 76: Epistemic Logic and Game Theory A bird-eye vieleiss/common-knowledge-11/...A Primer in Game Theory M. Osborne and A. Rubinstein. A Course in Game Theory. MIT Press, 1994. R.B. Meyerson

(0, 4)

(3, 3)

Bob

Bob

Ann

Ann

Hi

A

B

Hi

Lo

Lo

(1, 1)

(4, 0)

I The “centipede” game.

I What should Ann believe about Bob if she gets to play?!?

I If she can revise her beliefs about Bob’s rationality, thenbackward induction is no more ensured.

Page 77: Epistemic Logic and Game Theory A bird-eye vieleiss/common-knowledge-11/...A Primer in Game Theory M. Osborne and A. Rubinstein. A Course in Game Theory. MIT Press, 1994. R.B. Meyerson

(0, 4)

(3, 3)

Bob

Bob

Ann

Ann

Hi

A

B

Hi

Lo

Lo

(1, 1)

(4, 0)

I The “centipede” game.

I What should Ann believe about Bob if she gets to play?!?

I If she can revise her beliefs about Bob’s rationality, thenbackward induction is no more ensured.

Page 78: Epistemic Logic and Game Theory A bird-eye vieleiss/common-knowledge-11/...A Primer in Game Theory M. Osborne and A. Rubinstein. A Course in Game Theory. MIT Press, 1994. R.B. Meyerson

Conclusion

The “epistemic turn” in game theory:

I Highlights the importance of higher-order information instrategic interaction.

I Arguably one of the strength of epistemic logic.

I More recently: dynamic epistemic logic came into the picture.

I Fruitful collaboration between game theorist, computerscientists, philosophers, and many others!

Some further reading on the connection with epistemic logic:OR and Eric Pacuit, Interactive Rationality. Stanford Encyclopedia of Philoso-phy. In preparation. Email me for details..

J. van Benthem, E. Pacuit and OR. Towards a Theory of Play: the LogicalPerspective on Games and Interaction. Games, 2:1, 52-86, 2011.

... and courses next semester!

Page 79: Epistemic Logic and Game Theory A bird-eye vieleiss/common-knowledge-11/...A Primer in Game Theory M. Osborne and A. Rubinstein. A Course in Game Theory. MIT Press, 1994. R.B. Meyerson

Conclusion

The “epistemic turn” in game theory:

I Highlights the importance of higher-order information instrategic interaction.

I Arguably one of the strength of epistemic logic.

I More recently: dynamic epistemic logic came into the picture.

I Fruitful collaboration between game theorist, computerscientists, philosophers, and many others!

Some further reading on the connection with epistemic logic:

OR and Eric Pacuit, Interactive Rationality. Stanford Encyclopedia of Philoso-phy. In preparation. Email me for details..

J. van Benthem, E. Pacuit and OR. Towards a Theory of Play: the LogicalPerspective on Games and Interaction. Games, 2:1, 52-86, 2011.

... and courses next semester!

Page 80: Epistemic Logic and Game Theory A bird-eye vieleiss/common-knowledge-11/...A Primer in Game Theory M. Osborne and A. Rubinstein. A Course in Game Theory. MIT Press, 1994. R.B. Meyerson

Conclusion

The “epistemic turn” in game theory:

I Highlights the importance of higher-order information instrategic interaction.

I Arguably one of the strength of epistemic logic.

I More recently: dynamic epistemic logic came into the picture.

I Fruitful collaboration between game theorist, computerscientists, philosophers, and many others!

Some further reading on the connection with epistemic logic:OR and Eric Pacuit, Interactive Rationality. Stanford Encyclopedia of Philoso-phy. In preparation. Email me for details..

J. van Benthem, E. Pacuit and OR. Towards a Theory of Play: the LogicalPerspective on Games and Interaction. Games, 2:1, 52-86, 2011.

... and courses next semester!

Page 81: Epistemic Logic and Game Theory A bird-eye vieleiss/common-knowledge-11/...A Primer in Game Theory M. Osborne and A. Rubinstein. A Course in Game Theory. MIT Press, 1994. R.B. Meyerson

Epistemic Logic andGame Theory

A bird-eye view

Olivier Roy

Munich Center for Mathematical Philosophyhttp://olivier.amonbofis.net/

[email protected]

June 27, 2011