Information Compression in Dynamic Games

One of the reasons why stochastic dynamic games with an underlying dynamic system are challenging is since strategic players have access to enormous amount of information which leads to the use of extremely complex strategies at equilibrium. One approach to resolve this challenge is to simplify players' strategies by identifying appropriate compression of information maps so that the players can make decisions solely based on the compressed version of information, called the information state. For finite dynamic games with asymmetric information, inspired by the notion of information state for single-agent control problems, we propose two notions of information states, namely mutually sufficient information (MSI) and unilaterally sufficient information (USI). Both these information states are obtained with information compression maps independent of the strategy profile. We show that Bayes-Nash Equilibria (BNE) and Sequential Equilibria (SE) exist when all players use MSI-based strategies. We prove that when all players employ USI-based strategies the resulting sets of BNE and SE payoff profiles are the same as the sets of BNE and SE payoff profiles resulting when all players use full information-based strategies. We prove that when all players use USI-based strategies the resulting set of weak Perfect Bayesian Equilibrium (wPBE) payoff profiles can be a proper subset of all wPBE payoff profiles. We identify MSI and USI in specific models of dynamic games in the literature. We end by presenting an open problem: Do there exist strategy-dependent information compression maps that guarantee the existence of at least one equilibrium or maintain all equilibria that exist under perfect recall? We show, by a counterexample, that a well-known strategy-dependent information compression map used in the literature does not possess any of the properties of MSI or USI.
Comment: 54 pages, 3 figures