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1. Information and Game Theory

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1 1. Information and Game Theory
Spring, 2019 Dept. of Agricultural Economics Chungbuk National University Yanghoon Song

2 Class Page on the Web URL: web.chungbuk.ac.kr/~yhsong2/Class_Pages/
Two Tests; 1 mid term and 1 final; multiple choice, 25~33 questions Evaluation: mid term 40%, final 50%, attendance 10%(late for class three times regarded as one absence) Downloading the lecture note: R-click on the link  save as different file name in the preferred directory. TA: +5% *Call the roll: 출석 부르다

3 강의노트 인쇄요령 (1) 파워포인트 메뉴를 이용하여 1쪽당 여러 슬라이드를 인쇄하면 여백이 필요이상으로 커지게 됨. 따라서, ‘프린트 속성’에서 조정하여 인쇄 ‘모든 슬라이드’ 및 ‘1슬라이드/페이지 인쇄‘ 선택 ‘프린터 속성’ ‘가로’ 선택 ‘면당 여러 페이지 인쇄, 4슬라이드… 테두리선 출력’ 선택 인쇄 예측 결과 확인 ‘확인’ 5. 3. 4. 2. 1. 6.

4 강의노트 인쇄요령 (2) 프린트 속성 조정시 인쇄결과 vs. 파워포인트 메뉴이용 인쇄결과

5 Motivation and Performance
Life is a journey. It’s NOT about getting things. It’s about doing things. When doing things, you need to ask 5W1H Questions: When, Where, Who, What, Why and How? The most important question? Why = Motivation = goal  Other questions follow this question and ‘Why’ affects the outcome of our efforts and performance You can do things better when you are doing whatever you like. Choose your career that interests you most. Do not seek to get money or things that money can buy.

6 Motivation and Performance (cont’d)
Why are you here? Are you interested in information and game theory? Or you are here just to get credits to graduate? Why do you want to graduate? Why do you want to get a better job or good life? What is a good life? You need to ask these questions and try to get answers before it’s too late. This is a question to be answered NOW, not later. NOW is the most important time. Time is an illusion (A. Einstein) Game Theory help us understand the reasons behind people’s actions/doings.  It helps you answer the question of Why. *Behavioral Econ.?

7 Definition of Information
Inform: from in- "into" + formare "to form, shape," from forma "form“ Information is that which informs. In other words, it is the answer to a question of some kind. Forms: Data  Information  knowledge  Wisdom Simple version: Anything that can be digitized Ex) photos, pictures, music, texts… How about cars, chairs?

8 Categories of Information (non-exclusive)
Perfect(완벽): Each information set is singleton  각각 처한 상황이 구분된다  게임의 진행과정 및 결과를 모호함 없이 알고 있다 Certain(확실): Nature does not move after any player moves  베팅한 다음에 새로운 카드는 없다 Symmetric(대칭): No player has information different from other players when s/he moves, or at the end nodes  서로 상대방이 어떤 카드를 가졌는지 안다 Complete(완전): Nature does not move first, or her initial move is observed by every player  처음에 어떤 카드 깔렸는지 다 안다 However, each category is exclusive in itself.  can’t be perfect AND imperfect.

9 How do information and its characteristics affect the outcome of a game?
Classifying information Ex) Game of Poker 어떤 카드들이 돌려졌는지 다 알고 게임의 결과도 안다 내 카드, 다른 사람 카드 모르고 게임의 결과도 모른다 다른 사람카드는 모르고 게임의 결과도 모른다 처음에는 다른 사람카드알지만 게임의 결과는 모른다 one 처음에는 다른 사람카드알지만 한장 더 까서 받아 게임의 결과는 모른다 *However, each category is exclusive in itself.  can’t be perfect AND imperfect. 게임의 결과를 안다 베팅한 다음에 새로은 카드는 없다, 결과가 바뀌지 않는다 서로 상대방 카드 안다 처음에 어떤 카드 깔렸는지 다 안다 *Incomplete or Asymmetric  Imperfect? YES *Imperfect  Incomplete or Asymmetric? NO *Korean beef market? Imperfect-Uncertain-Asymmetric-Incomplete information game.

10 *Symmetry/Completeness와 Perfection과의 관계
Information? Anything that can be digitized. Perfectness, Completeness, Symmetry and Certainty of Information  수학적으로 가능한 조합 16개 (=2^4), 이 중 의미 있는 조합 8개 *Symmetry/Completeness와 Perfection과의 관계 Symmetric ? Perfect Complete Incomplete Certain Imperfect Uncertain Asymmetric *Certainty와 Perfection과는 관련 없음

11 Straight wins! All cards are dealt face up

12 All cards are dealt face down and a player cannot look even at his own cards before s/he bets

13 All cards are dealt face down, and a player can look at his own cards

14 All cards are dealt face up, but each player then scoops up his hand and secretly discards one card

15 All cards are dealt face up, the players bet, and then each player receives once more card face up

16 All cards are dealt face down, but then each player scoops up one of his cards without looking at them against his forehead so all the other players can see them (Indian poker)

17 Classification of Information
If you know what strategies your opponents have taken, the information is perfect. If you know what strategies you and your opponents have and associated payoffs, the information is complete. If you know what your opponents know, the information is symmetric. If you don’t worry about probability of what you would get, the information is certain.

18 Classification of Information
Complete and perfect information are importantly different. In a game of complete information (ex: Prisoner's dilemma), the structure of the game and the payoff functions of the players are commonly known but players may not see all of the moves made by other players (for instance, the initial placement of ships in Battleship)  Imperfect information; there may also be a chance element (as in most card games). Conversely, in games of perfect information (ex: chess), every player observes other players' moves, but may lack some information on others' payoffs, or on the structure of the game  incomplete info.

19 Classification of Information
Perfect  moves observed (no … 점선 없음) Complete  payoffs observed (보상이 알려져 있음) Info. Perfect Imperfect Symmetric Symmetric Complete Symmetric Asymmetric (?,?) (1,?) Incomplete (1,?) (?,?) Ex) 가격경쟁 게임에서 선수1은 자신의 생산비용은 알고 있으나 (자신의 보상은 알고 있으나) 선수2의 생산비용은 모르고 있음

20 1. Information and Game Theory 1. 1 Basics and Examples of Game 1. 1
1. Information and Game Theory 1.1 Basics and Examples of Game Evolution of Information Peter M. Allen, 1994, (Coherence, Chaos and Evolution in the Social Context, Futures 26:597) Knowing the process Understanding the system Recognizing the limits data Information Knowledge Wisdom Grade How is my work evaluated? How did I work? How can I improve my grade? Work harder Be polite to professor What problems do I expect in improving my grade?

21 1. Information and Game Theory 1. 1 Basics and Examples of Game 1. 1
1. Information and Game Theory 1.1 Basics and Examples of Game Knowledge Base Data Base (DB) Ex) list of students Information Base OR System (= DB + Query) Ex) MIS, list of students by class Knowledge Base OR System (= IS+strategy; Game theory) Ex) AI, ES(Expert System) Wisdom Base (= KS + Long-term/ Comprehensive/Philosophical/Religious view point) Ex) Bible, Koran The 1st GT context is found in Talmud

22 1. Information and Game Theory 1. 1 Basics and Examples of Game 1. 1
1. Information and Game Theory 1.1 Basics and Examples of Game What is Game Theory? Game : Star-craft? Billiard? Gambling? YES. But War, business, education, career, relationships are games too. Definition of Game Theory: a science to study the process of interaction that influences each other player’s rational strategies. Do people act rationally all the time? NO  Behavioral Economics! (경제학+심리학)

23 How is Game Theory(GT) different from classical economic theory?
1. Information and Game Theory 1.1 Basics and Examples of Game What is Game Theory? (cont’d) How is Game Theory(GT) different from classical economic theory? Classical economic theory: An economic agent can maximize his/her utility if s/he makes her or his own decision right. GT: The utility of an agent is influenced not only by the agent’s own decision but also by other agents’ decision. Therefore, you need information on what the others are doing, to make right decisions.

24 1. Information and Game Theory 1. 1 Basics and Examples of Game 1. 1
1. Information and Game Theory 1.1 Basics and Examples of Game What do we expect to get from studying GT? Myth: You learn how to play a perfect game so you never loose? NO ; 1) What if your opponent is equally familiar with GT? One has to loose. 2) Many games are very complex and winning depends on pure luck in many cases. Then why study GT? : GT can provide you with general strategies. Coupled with experiences, you can increase winning probability. Ex) Gambler calculating the probabilities only cannot win.

25 Difference btwn knowing the path and walking the path
Morpheus in Matrix (1999 film) told Neo "there's a difference between knowing the path and walking the path.“ Ability to calculate probability to win does not guarantee a victory. You have to exercise your strategies. You need experiences to make it work.

26 1. Information and Game Theory 1. 1 Basics and Examples of Game 1. 1
1. Information and Game Theory 1.1 Basics and Examples of Game What do we expect to get from studying GT? (cont’d) GT provides you with a general rule(theory) that is necessary to apply in various situations of games. Without a general rule, you will have to come up with a new set of rules or strategies every time you play a game. This rule (theory) provides you with a ready reference point  you can deploy your strategies more swiftly and with more confidence in game situations. 3-6-19

27 Tennis: Navratilova vs. Evert
1. Information and Game Theory 1.1 Basics and Examples of Game Examples of Strategic Game Tennis: Navratilova vs. Evert Navratilova : left-handed, aggressive/ offensive type, volley Evert : right-handed, defensive type, passing shot (DL or CC) Evert Down-the-line Navratilova Cross-court

28 1. Information and Game Theory 1. 1 Basics and Examples of Game 1. 1
1. Information and Game Theory 1.1 Basics and Examples of Game Examples of Strategic Game (cont’d) Evert has higher prob. of success for “down-the-line”  What if Evert ALWAYS use the strategy of “down-the-line”?  Nav. ALWAYS cover her right side  Evert ALWAYS fails. Therefore, Evert needs to “mix” her strategies of “down-the-line” and “cross-court” properly; You don’t want to show the same attack pattern. (다른예, Rock-Paper-Scissors) Same in relationships. You want “sporadic enforcement.” You need to be sweet and bitter to stay in a relationship. (밀당) In this case, what is NOT important is how you play. What is important is how you should NOT play.

29 1. Information and Game Theory 1. 1 Basics and Examples of Game 1. 1
1. Information and Game Theory 1.1 Basics and Examples of Game Examples of Strategic Game (cont’d) Therefore, you want to deploy random and/or unsystematic strategies (Ex: Game of poisoned chalice) *But what if your enemy is immune to the poison b/c s/he has been having small amount of the poison every day and you didn’t know?  game of asymmetric information Grading on a curve: If EVERYONE agrees not to study, students will be better-off?  NOT likely; There is no enforcement mechanism to deter a student from studying. Prisoners’ Dilemma: lose-lose game, No one wins; opposite of win-win game. Examples of PD game: Everybody standing up in a stadium to get better views, everybody head-in at a crossroad, arms race; win-win game? International trades.

30 1. Information and Game Theory 1. 1 Basics and Examples of Game 1. 1
1. Information and Game Theory 1.1 Basics and Examples of Game Examples of Strategic Game (cont’d) How do you find out an agent is providing a false information? Use the screening device. Ex) 2 students in this course. Studied hard and good grade before the final. Felt confident and decided to spend the weekend just before the final in Seoul for a party. Couldn’t study on Sunday b/c of hangover. Test on Monday morning. Decided to make an excuse to take a make-up exam. Told the professor that they had a flat tire on the way back to school. No spare tire. No passing cars. Phone discharged… Arrived in Cheong-ju in the late afternoon. Not enough time to study. Not fair. CAN WE TAKE A MAKE-UP EXAM? After a moment, the professor approved. 2 students studied very hard and was prepared for the test. They had 2 questions.

31 1. Information and Game Theory 1. 1 Basics and Examples of Game 1. 1
1. Information and Game Theory 1.1 Basics and Examples of Game Examples of Strategic Game (cont’d) Question #1: “what is information?” very easy but only 10 points. 2 students had no problem in answering. Question #2, 90 points: Lesson 1) Teachers are more experienced in these kind of matters. Thus, students needed to look ahead at the future strategies of the teacher, and they needed to reason backward on what counter strategies they should had. Lesson 2) Importance of the Focal Point : The focal point is a commonly expected strategy. Which tire would you say flattened? Why? Next. Which tire? *screening device

32 1. Information and Game Theory 1. 1 Basics and Examples of Game 1. 1
1. Information and Game Theory 1.1 Basics and Examples of Game Examples of Strategic Game (cont’d) Logically, the right-front tire has the highest probability of flattening b/c the front of a car is heavier and debris such as nails are commonly found at the right side of the roads. If a strategy is logical, that strategy is selected as the Focal Point? NO. Your partner needs to be as logical as you. Also, your partner being logical needs to be apparent to you and your thinking so needs to be apparent to your partner. But all these needs to be apparent to each other and so on. Never stops. Locked in the circle of guessing what is apparent to whom. Generally, by chance or by common knowledge the Focal Point is formed. Ex) They saw a car with right front tire flattened on the way back and the two shared/discussed the incident. Or one of the two said, ‘the right front tire needs more air’ and made sure it is heard. Then, the answer could be ‘front right tire’ and the focal point is achieved.

33 1. Information and Game Theory 1. 1 Basics and Examples of Game 1. 1
1. Information and Game Theory 1.1 Basics and Examples of Game Examples of Strategic Game (cont’d) Waiting game(roommate and cleaning game) Dynamic version of waiting game=war of attrition(소모전)= brinkmanship (act of pushing a situation to the verge of war or brink of disaster; 벼랑 끝 전술) =game of chicken= A girl going out(See u later, Where?, Out, OK)=wage agreement= arms race A girl going out: daughter testing the ‘untested limits of her freedom,’ father testing the ‘untested limits of his authority,’ bearing the augmenting risks for daughter to be grounded and for father losing his face in front of guests.

34 1. Information and Game Theory 1. 1 Basics and Examples of Game 1. 1
1. Information and Game Theory 1.1 Basics and Examples of Game Examples of Strategic Game (cont’d) Manipulation of information and signaling in the Dating Game : Two love birds living in separate apartments in New York. The girl is not confident that the boy is in love with her or not. The girl proposes that the boy moves in her apartment to save money. Screening device; strategy to make other party reveal her/his private information; If he moves in, he loves me. If he doesn’t, he will leave me eventually.

35 1. Information and Game Theory 1. 1 Basics and Examples of Game 1. 1
1. Information and Game Theory 1.1 Basics and Examples of Game Examples of Strategic Game (cont’d) Counter strategy of a naïve economics major boyfriend: It is always better to have options even though there is very low probability of break-up  boy rejects, signaling he is not committed.  girl breaks up. Counter strategy of a smooth politics major boyfriend: Excellent idea! We will definitely consider that possibility. After a while, he proposes that she moves into his apartment b/c his apartment has a better location and larger space… Words are cheap. Actions are not.

36 1. Information and Game Theory 1. 1 Basics and Examples of Game 1. 1
1. Information and Game Theory 1.1 Basics and Examples of Game Approaches to Strategic Games Case study : mostly used in management sciences. Study many cases and apply them to similar situations. focus more on ‘how’. Realistic and applicable; Problem? There is no same situation and every time you apply, new variables are added, which make application difficult. Theory : usually used in economics. Try to form a general rule and study the rules on strategic actions.  focus more on ‘why’; Problem? Most are mathematically challenging. Also, without sufficient examples, separated from reality. Not for beginners. Both are, however, the processes of building our own ‘thought experiment model’ in our heads. *Schrödinger's cat (1935)

37 1. Information and Game Theory 1. 1 Basics and Examples of Game 1. 1
1. Information and Game Theory 1.1 Basics and Examples of Game Approaches to Strategic Games (cont’d) Why theory?: Understanding ‘why you have the outcome of the game’ makes you play a more general game better than understanding ‘how to play a game.’ Understanding the process is more important. Stephen Hawking: “Now I know how universe is created and the next question is why.” interview, The Great Universe, Science Channel, 2009. Tom Wiswell (World Checkers Champion): The player who knows how will usually draw, the player who knows why will usually win *draw : 끌다, (경기를) 비기다

38 1. Information and Game Theory 1. 1 Basics and Examples of Game 1. 1
1. Information and Game Theory 1.1 Basics and Examples of Game Approaches to Strategic Games (cont’d) However, ‘how(application of theory)’ is also important. Therefore, we will resort to both case study (how) and theory (why), explaining theory with examples. Problem of this approach: can’t deal with all the details with practicality/accuracy. However, there isn’t any better way. To learn the general rules, we will study the primary characteristics of games in the following lectures.


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