You can add the following settings in settings.json configuration file:

"python.analysis.diagnosticSeverityOverrides": {
    "reportUndefinedVariable": "none"
}

Or you can search for python.analysis.diagnosticSeverityOverrides in the settings, click Add Item button to select "reportUndefinedVariable", "none":

Result:

Considering you will not be adding any extensions at runtime how about creating a file that will generate all references directly to "__init__.py"?

if __name__ == "__main__":
    from os.path import dirname, basename, isfile, join
    import glob
    modules = glob.glob(join(dirname(__file__), "*.py"))
    print(join(dirname(__file__), "*.py"))
    __all__ = ["\t\"" +basename(f)[:-3]+"\",\n" for f in modules if isfile(f) and not f.endswith('__init__.py') and not f.endswith('__add__manager.py')]

    f = open(join(dirname(__file__), "__init__.py"), "a")
    f.write("__all__ = [\n")
    f.writelines(__all__)
    f.write("]\n")
    f.close()

Result will look something like this:

#(previous contents of __init__.py)

__all__ = [
    "file1",
    "file2",
]

Finally I found the answer:

...you may want to tell Pyright about these additional symbols that are available at runtime. To do so, you can add a local type stub file called __builtins__.pyi

Inserting a file called __builtins__.pyi with the contents _ = str in the base of the project will be interpreted by pyright so that _ is evaluated as a global symbol of type str.

You can add your variables to the 'additional-builtins' option so pylint will consider them as defined.

This has to be done in a rc file, it can't be done inlined in the code.

That is a Pylance error.

You can create a pyrightconfig.json file at the root of your workspace and define the files to be exclude-d from analysis or completely ignore-d:

{
    "ignore": [
        "**/*.ipynb",
    ],
}

You can even list up specific filenames:

{
    "ignore": [
        "notimportant.ipynb",
        "test.ipynb",
    ],
}

Historical Notes:

It initially didn't work for Jupyter Notebooks (.ipynb):
https://github.com/microsoft/pylance-release/issues/2135

This happens because pyright doesn't see the file as a "*.ipynb". The file is being preprocessed (to combine all of the cells) in the notebook by the VS Code Python extension, and the resulting combined file is then passed to pyright for analysis.

The pylance team is actively working on changing the way this works. I'm going to transfer this bug to the pylance-release repo so it gets the attention it deserves.

That Github issue has since been resolved the fix was deployed as part of pylance 2022.8.51: https://github.com/microsoft/pylance-release/blob/main/CHANGELOG.md#2022851-31-august-2022-prerelease

Notable changes:

• ...
• Bug Fix: Ignoring *.ipynb files does not work (pylance-release#2135)

If it somehow still does not work, check the version of pylance on your VS Code.

insert this:

# type: ignore

paste it at the top of the file to ignore the file

paste it at the end of a line to ignore the line

Reference: https://www.reddit.com/r/VisualStudioCode/comments/i3mpct/comment/g5bkx9u/

Python is executed top to bottom, so all your Classes and finctions should be defined before called (so placed on top). Also

class Play:
    def __init__(player1, player2):
        self.player1 = player1
        self.player2 = player2

you should define your attributes inside your class like this before anything else, self it refers to the current instance of your class, everything in here.