In game theory, normal form is a description of a game. Unlike extensive form, normal-form representations are not graphical per se, but rather represent the game by way of a matrix. While this approach can be of greater use in identifying strictly dominated strategies and Nash equilibria, some information is lost as compared to extensive-form representations. The normal-form representation of a game includes all perceptible and conceivable strategies, and their corresponding payoffs, for each player.
The matrix provided is a normal-form representation of a game in which players move simultaneously (or at least do not observe the other player's move before making their own) and receive the payoffs as specified for the combinations of actions played. For example, if player 1 plays top and player 2 plays left, player 1 receives 4 and player 2 receives 3. In each cell, the first number represents the payoff to the row player (in this case player 1), and the second number represents the payoff to the column player (in this case player 2).
Often, symmetric games (where the payoffs do not depend on which player chooses each action) are represented with only one payoff. This is the payoff for the row player. For example, the payoff matrices on the right and left below represent the same game.
These matrices only represent games in which moves are simultaneous (or, more generally, information is imperfect). The above matrix does not represent the game in which player 1 moves first, observed by player 2, and then player 2 moves, because it does not specify each of player 2's strategies in this case. In order to represent this sequential game we must specify all of player 2's actions, even in contingencies that can never arise in the course of the game. In this game, player 2 has actions, as before, Left and Right. Unlike before he has four strategies, contingent on player 1's actions. The strategies are:
whose intended interpretation is the award given to a single player at the outcome of the game. Accordingly, to completely specify a game, the payoff function has to be specified for each player in the player set I= 1, 2, ..., I.
In game theory, an extensive-form game is a specification of a game allowing (as the name suggests) for the explicit representation of a number of key aspects, like the sequencing of players' possible moves, their choices at every decision point, the (possibly imperfect) information each player has about the other player's moves when they make a decision, and their payoffs for all possible game outcomes. Extensive-form games also allow for the representation of incomplete information in the form of chance events modeled as "moves by nature". Extensive-form representations differ from normal-form in that they provide a more complete description of the game in question, whereas normal-form simply boils down the game into a payoff matrix.
Some authors, particularly in introductory textbooks, initially define the extensive-form game as being just a game tree with payoffs (no imperfect or incomplete information), and add the other elements in subsequent chapters as refinements. Whereas the rest of this article follows this gentle approach with motivating examples, we present upfront the finite extensive-form games as (ultimately) constructed here. This general definition was introduced by Harold W. Kuhn in 1953, who extended an earlier definition of von Neumann from 1928. Following the presentation from Hart (1992), an n-player extensive-form game thus consists of the following:
The above presentation, while precisely defining the mathematical structure over which the game is played, elides however the more technical discussion of formalizing statements about how the game is played like "a player cannot distinguish between nodes in the same information set when making a decision". These can be made precise using epistemic modal logic; see Shoham & Leyton-Brown (2009, chpt. 13) for details.
A perfect information two-player game over a game tree (as defined in combinatorial game theory and artificial intelligence) can be represented as an extensive form game with outcomes (i.e. win, lose, or draw). Examples of such games include tic-tac-toe, chess, and infinite chess. A game over an expectminimax tree, like that of backgammon, has no imperfect information (all information sets are singletons) but has moves of chance. For example, poker has both moves of chance (the cards being dealt) and imperfect information (the cards secretly held by other players). (Binmore 2007, chpt. 2)
The game on the right has two players: 1 and 2. The numbers by every non-terminal node indicate to which player that decision node belongs. The numbers by every terminal node represent the payoffs to the players (e.g. 2,1 represents a payoff of 2 to player 1 and a payoff of 1 to player 2). The labels by every edge of the graph are the name of the action that edge represents.
If player 1 plays D, player 2 will play U' to maximise their payoff and so player 1 will only receive 1. However, if player 1 plays U, player 2 maximises their payoff by playing D' and player 1 receives 2. Player 1 prefers 2 to 1 and so will play U and player 2 will play D' . This is the subgame perfect equilibrium.
An advantage of representing the game in this way is that it is clear what the order of play is. The tree shows clearly that player 1 moves first and player 2 observes this move. However, in some games play does not occur like this. One player does not always observe the choice of another (for example, moves may be simultaneous or a move may be hidden). An information set is a set of decision nodes such that:
If a game has an information set with more than one member that game is said to have imperfect information. A game with perfect information is such that at any stage of the game, every player knows exactly what has taken place earlier in the game; i.e. every information set is a singleton set. Any game without perfect information has imperfect information.
The game on the right is the same as the above game except that player 2 does not know what player 1 does when they come to play. The first game described has perfect information; the game on the right does not. If both players are rational and both know that both players are rational and everything that is known by any player is known to be known by every player (i.e. player 1 knows player 2 knows that player 1 is rational and player 2 knows this, etc. ad infinitum), play in the first game will be as follows: player 1 knows that if they play U, player 2 will play D' (because for player 2 a payoff of 1 is preferable to a payoff of 0) and so player 1 will receive 2. However, if player 1 plays D, player 2 will play U' (because to player 2 a payoff of 2 is better than a payoff of 1) and player 1 will receive 1. Hence, in the first game, the equilibrium will be (U, D' ) because player 1 prefers to receive 2 to 1 and so will play U and so player 2 will play D' .
In the second game it is less clear: player 2 cannot observe player 1's move. Player 1 would like to fool player 2 into thinking they have played U when they have actually played D so that player 2 will play D' and player 1 will receive 3. In fact in the second game there is a perfect Bayesian equilibrium where player 1 plays D and player 2 plays U' and player 2 holds the belief that player 1 will definitely play D. In this equilibrium, every strategy is rational given the beliefs held and every belief is consistent with the strategies played. Notice how the imperfection of information changes the outcome of the game.
To more easily solve this game for the Nash equilibrium, it can be converted to the normal form. Given this is a simultaneous/sequential game, player one and player two each have two strategies.
We will have a two by two matrix with a unique payoff for each combination of moves. Using the normal form game, it is now possible to solve the game and identify dominant strategies for both players.
In games with infinite action spaces and imperfect information, non-singleton information sets are represented, if necessary, by inserting a dotted line connecting the (non-nodal) endpoints behind the arc described above or by dashing the arc itself. In the Stackelberg competition described above, if the second player had not observed the first player's move the game would no longer fit the Stackelberg model; it would be Cournot competition.
It may be the case that a player does not know exactly what the payoffs of the game are or of what type their opponents are. This sort of game has incomplete information. In extensive form it is represented as a game with complete but imperfect information using the so-called Harsanyi transformation. This transformation introduces to the game the notion of nature's choice or God's choice. Consider a game consisting of an employer considering whether to hire a job applicant. The job applicant's ability might be one of two things: high or low. Their ability level is random; they either have low ability with probability 1/3 or high ability with probability 2/3. In this case, it is convenient to model nature as another player of sorts who chooses the applicant's ability according to those probabilities. Nature however does not have any payoffs. Nature's choice is represented in the game tree by a non-filled node. Edges coming from a nature's choice node are labelled with the probability of the event it represents occurring.
The game on the left is one of complete information (all the players and payoffs are known to everyone) but of imperfect information (the employer doesn't know what nature's move was.) The initial node is in the centre and it is not filled, so nature moves first. Nature selects with the same probability the type of player 1 (which in this game is tantamount to selecting the payoffs in the subgame played), either t1 or t2. Player 1 has distinct information sets for these; i.e. player 1 knows what type they are (this need not be the case). However, player 2 does not observe nature's choice. They do not know the type of player 1; however, in this game they do observe player 1's actions; i.e. there is perfect information. Indeed, it is now appropriate to alter the above definition of complete information: at every stage in the game, every player knows what has been played by the other players. In the case of private information, every player knows what has been played by nature. Information sets are represented as before by broken lines. 041b061a72