Game theory is a branch of mathematics concerned with the analysis of strategies for dealing with competitive situations. Game theory is typically concerned with the process of modeling the strategic interaction between two or more players in a situation containing a set of rules and outcomes, such as a board game. It is used in a number of disciplines, most notably in economics, where game theory can be used as a tool for financial analysis.
There are many different types of games that can be analyzed mathematically using game theory. In this lesson, we will talk about a specific thinking tool used commonly in game theory to derive the most optimal strategy called backwards induction.
Here is some general terminology commonly used in game theory.
Game: Any set of circumstances that has a result dependent on the actions of two or more decision makers (players).
Players: A strategic decision-maker within the context of the game.
Strategy: A complete plan of action a player will take given the set of circumstances that might arise within the game.
Win Condition: The state of the game that directly leads to a player winning the game (such as a checkmate in chess).
Loss Condition: The state of the game that directly leads to a player losing the game.
Winning Strategy: The strategy a player can follow to guarantee winning the game.
Payoff: The resources gained by a player when the game (or one round of the game) ends.
This
Let us illustrate a potential first two moves of a game. In this
example, player
From this state of the game, the potential squares that player
Suppose player
After this, it is once again player
Before reading further, try playing this game with an opponent, and
alternate between being player
Let us take a look at the win condition for this game. (The
squares are labeled so we can clearly refer to each square.)
Suppose the current game state is as follows (with the rook on the
square b
The answer is no. No matter if you move up or to the left for one
square, your opponent will be able to move the rook onto the winning
square. Hence, the square b
Continuing this pattern, if you are able to move the rook onto c
This thought process can be traced back all the way to the beginning of the game. We can see that every diagonal square is a win condition if you are able to move the rook there.
If we assume both players know this winning strategy, in order to
guarantee the win, you need to start the game as player
This method of deductive reasoning is called backwards induction, where you start from the “end of the game” and retrace the steps that lead to that particular ending. In this case, we were concerned with finding the winning strategy.
Does the strategy change if the game was played on a
This logic coin game is another
There are
Before reading any further, try playing this game with an opponent,
or head to this geogebra
page and set the number of coins in the pile to
Suppose there are
Takes
Takes
Takes
Therefore, if you can leave your opponent with
Using this logic, taking the
How do you make sure you can take the
Takes
Takes
Takes
Continuing this pattern, leaving your opponent with
Notice that
If your opponent takes
If your opponent takes
If your opponent takes
Here is an example game played by two players. Each row shows the
number of coins that each player removes, as well as the remaining coins
in the pile. We can see that even if both players know the strategy,
player
Number of coins player |
1 | 0 | 2 | 0 | 3 | 0 | 3 | 0 | 1 | 0 | 2 | 0 | 3 |
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Number of coins player |
0 | 2 | 0 | 1 | 0 | 1 | 0 | 3 | 0 | 2 | 0 | 1 | 0 |
Remaining coins | 24 | 22 | 20 | 19 | 16 | 15 | 12 | 9 | 8 | 6 | 4 | 3 | 0 |
The logic coin game works exactly the same way as the game of rooks
we played earlier, although they look very different. Leaving the
opponent to play from a diagonal square is essentially the same as
leaving the opponent with a coin pile that is a multiple of
Suppose we play the logic coin game with the same rules, but there
are 40 coins in the pile. Would you like to be player
In this scenario, we still want to have the remaining coin pile to be
a multiple of
There once were a group of
In the world of pirates, the most senior pirate would propose a plan
of distribution on how to split the coins. The pirates, including the
proposer, then vote on whether or not to accept this distribution. If
the majority accepts the plan, then the coins are distributed and the
game ends. In case of a tie vote (if there are an even number of
pirates), the proposer of the plan has the casting vote (a casting vote
is essentially “one extra vote” that is used to break ties). If the
majority rejects the plan, the proposer is thrown overboard from the
pirate ship and dies, and the next most senior pirate can make a new
proposal to be voted on again. This cycle continues until either a plan
is accepted, or until there is only
The pirates, being rational and intelligent, base their decisions on three factors.
Survival is the top priority.
Given that I survive, I want to maximize the number of gold coins distributed to me.
If the payoffs (number of gold coins) I gain are equal whether I accept or reject the proposed plan, I would prefer to throw another pirate overboard by rejecting the proposal.
Suppose you were pirate A, the most senior of the pirates. What distribution plan would you propose?
You may be surprised to find out that the optimal coin distribution plan for pirate A is the following:
A:
B:
C:
D:
E:
In order to arrive at this surprising result, we must first understand that based on the rules of the game, we can accurately predict how each pirate will vote in a particular scenario. Since the decision of each pirate casting a vote is directly tied to the payoff of the next scenario, we can use backwards induction once again, and work from the final possible scenario.
The final time that a vote would be cast is when all other pirates
except D and E are thrown overboard. Since D is senior to E, D has the
casting vote. In this scenario, D would simply propose to keep all
If there are three pirates left (C, D, and E), pirate C can predict
that the payoff would be the situation above if they get voted off,
where pirate E will get
If there are four pirates left (B, C, D, and E), pirate B has the
casting vote. Therefore, only one other vote is required for the
proposal to pass. Therefore, pirate B should offer
With all pirates having this knowledge, we have come to the current
scenario. Looking at the payoff of the next scenario, all pirate A needs
to do is to offer
Suppose there were
Let there be
A (you):
B:
C:
D:
E:
F:
Let there be
A (you):
B:
C:
D:
E:
F:
G: