Common Information Based Markov Perfect Equilibria for Stochastic Games With Asymmetric Information: Finite Games

A model of stochastic games where multiple controllers jointly control the evolution of the state of a dynamic system but have access to different information about the state and action processes is considered. The asymmetry of information among the controllers makes it difficult to compute or characterize Nash equilibria. Using the common information among the controllers, the game with asymmetric information is used to construct another game with symmetric information such that the equilibria of the new game can be transformed to equilibria of the original game. Further, under certain conditions, a Markov state is identified for the new symmetric information game and its Markov perfect equilibria are characterized. This characterization provides a backward induction algorithm to find Nash equilibria of the original game with asymmetric information in pure or behavioral strategies. Each step of this algorithm involves finding Bayesian Nash equilibria of a one-stage Bayesian game. The class of Nash equilibria of the original game that can be characterized in this backward manner are named common information based Markov perfect equilibria.

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