GAME THEORY

ABOUT GAME THEORY

PUT FORWARD BY VON NEUMANN IN 1928.

DEALS WITH MATHEMATICAL ANALYSIS OF

COMPETETIVE PROBLEMS.

BASED ON MINIMAX PRINCIPLE.

DOES NOT DESCRIBE HOW THE GAME SHOULD BE

PLAYED BUT JUST ANALYSES THE OUTCOMES OF THE
COMBINATIONS OF THE VARIOUS STRATEGIES
PLAYED BY THE COMPETITORS.
 GAME THEORY

COMPETETIVE ANALYSIS

MAXIMISE THE MINIMUM MINIMISE THE MAXIMUM

GAIN LOSS
 USEFUL TERMINOLOGY

PLAYER : EACH PARTICIPANT IS A PLAYER.

STRATEGY : THE DECESION RULE BY WHICH A PLAYER

DETERMINES HIS COURSE OF ACTION.

PURE STRATEGY MIXED STRATEGY

If a player decide to use only one particular If a player
decide in advance to use all or
Course of action during each play; he is said some of his
available course of action in
to use a pure strategy. some fixed proportion; he is
said to used mixed strategy

PAYOFF MATRIX: A TABLE SHOWING THE AMOUNTS

RECEIVED BY THE PLAYER NAMED AT THE LEFT HAND SIDE
AFTER ALL THE POSSIBLE PLAYS OF THE GAME.THE
PAYMENT IS MADE BY THE PLAYER NAMED AT THE TOP OF
THE TABLE.

TWO PERSON ZERO SUM GAME: A GAME WITH TWO

PLAYERS, WHERE GAIN OF ONE PLAYER EQUALS THE LOSS
 HOW A 2 PERSON ZERO SUM GAME LOOK LIKE:

IF PLAYER A HAS m - COURSES OF ACTON AND PLAYER B HAS n

COURSES, THEN

AS PAYOFF MATRIX BS PAYOFF MATRIX

Player B Player B

I II III n I II III n
1 a11 a12 a13 a1n
1 -a 11 -a12 -a13 -a1n

a21 a22 a23 a2n -a -a22 -a23 -a2n

2 2 21
Player A

Player A
. .
. .
. am1 am2 am3 amn . -a m1 -am2 -am3 -amn

m m

THE SUM OF PAYOFF MATRICES FOR A & B IS A NULL MATRIX

HOW TO SOLVE TWO PERSON ZERO
SUM GAME:

BASED ON STRATEGIES

PURE MIXED

STRATEGY STRATEGY

2 X2 ORDER PAYOFF 2 X n OR m X 2 ORDER

MATRIX PAYOFF MATRIX

LOOK FOR

SADDLE POINT
ODDS GRAPHICAL
 HOW TO DETERMINE SADDLE POINT

STEP I : AT THE RIGHT OF EACH ROW,WRITE THE

ROW MINIMUM & RING THE LARGEST OF
THEM.

STEP II: AT THE BOTTOM OF EACH COLUMN,WRITE

THE COLUMN MAXIMUM & RING THE
SMALLEST OF THEM.

STEP III:IF THESE TWO ELEMENTS ARE SAME ,THE

CELL WHERE THE CORRESPONDING ROW
&COLUMN MEET IS A SADDLE POINT & THE
ELEMENT IN THAT CELL IS CALLED VALUE OF
QUESTION1.
FOR THE FOLLOWING 2 PERSON ZERO SUM GAME , FIND THE OPTIMAL
STRATEGIES FOR THE TWO PLAYERS AND THE VALUE OF THE GAME.

Player B

B1 B2 B3
A1 5 9 3
Player A

A2 6 -12 -11
A3 8 16 10

SOLUTION
STEP I AT THE RIGHT OF EACH ROW,WRITE THE ROW

MINIMUM & RING THE LARGEST OF THEM.

STEP II: AT THE BOTTOM OF EACH COLUMN,WRITE THE COLUMN

MAXIMUM & RING THE SMALLEST OF THEM.

 Player B

B1 B2 B3 ROW MINIMUM
A1 5 9 3
Player A
3
A2 6 -12 -11
-12
A3 8 16 10
8
COLUMN
8 16 10
STEP III: MAXIMUM

CLEARLY MAXIMIN = MINIMAX = 8.

THUS THE MATRIX HAS THE SADDLE POINT AT THE POSITION (3, 1).

THUS THE SOLUTION OF THE GAME IS GIVEN BY

THE BEST STRATEGY FOR THE PLAYER A IS A3

THE BEST STRATEGY FOR THE PLAYER B IS B 1

THE VALUE OF THE GAME FOR PLAYER A IS 8

 QUESTION 2.
Solve the game
Player B

1 2 3 4 5 Row Min

I 1 3 2 7 4 1
Player A

II 3 4 1 5 6 1
III 6 5 7 6 5 5
IV 2 0 6 3 1
0
Column
6 5 7 7 6
Max
 Question 3
Solve the game whose pay off matrix is
given by:
-1 -2 8
7 5 -1
6 0 12
Solution: First we try to find out the saddle
point of the game B
I II III
Row Min
I -1 -2 8
-2
A II 7 5 -1
-1
III 6 0 12
0
Column Max 7 5 12
 DOMINANCE METHOD

IF NO PURE STRATEGIES EXIST, WE ELEMINATE CERTAIN

STRATAGIES BY DOMINANCE.

DOMINANCE RULE FOR ROWS IS :

EVERY VALUE IN THE DOMINATING ROW(S) MUST BE

GREATER THAN OR EQUAL TO THE CORRESPONDING
VALUE OF THE DOMINATED ROW.

DOMINANCE RULE FOR COLUMNS IS :

EVERY VALUE IN THE DOMINATING COLUMN(S) MUST BE

LESS THAN OR EQUAL TO THE CORRESPONDING VALUE
OF THE DOMINATED COLUMN.
Since Maximin Value Minimax Value ,hence saddle point
doesn't exist in this game so we reduce it by
dominance principle. B
I II III
I -1 -2 8
A II 7 5 -1
III 6 0 12

Here Row I is dominated by Row III, hence we eliminate

Row I B B
I II III II III
II 7 5 -1 II 5 -1
A A
III 6 0 12 III 0 12

Now Column I is dominated by Column II, Hence we

 QUESTION 2.
REDUCE THE GAME BY DOMINANCE & SOLVE IT
Player B

1 2 3 4 5
I 1 3 2 7 4
Player A

II 3 4 1 5 6
III 6 5 7 6 5
IV 2 0 6 3 1

SOLUTION

WE REDUCE IT BY DOMINANCE PRINCIPLE AS FOLLOW:

FROM PLAYER AS POINT OF VIEW; ROW IV IS DOMINATED BY ROW III,

THEREFORE DELETING ROW IV WE GET

Player B

1 2 3 4 5
Player A
I 1 3 2 7 4
II 3 4 1 5 6
III 6 5 7 6 5

IV 2 0 6 3 1
FROM PLAYER BS POINT OF VIEW ; COLUMN 4 IS DOMINATED BY COLUMN1

AND COLUMN 2 THEREFORE, DELETING COLUMN 4 ,WE GET

Player B

1 2 3 4 5

I
Player A

1 3 2 7 4
II 3 4 1 5 6
III 6 5 7 6 5
 AGAIN, FROM PLAYER BS POINT OF VIEW ; COLUMN 5 IS DOMINATED

BY COLUMN 2 THEREFORE, DELETING

Player B COLUMN 5 ,WE GET;
1 2 3 5

Player A I 1 3 2 4
II 3 4 1 6
III 6 5 7 5

FROM PLAYER AS POINT OF VIEW; ROW I AS WELL AS ROW II ARE

DOMINATED BY ROW III, THEREFORE DELETING ROW I & II WE GET

Player B

1 2 3
Player A
III 6 5 7

OUT OF THE THREE STRATEGIES AVAILABLE TO B, HE WILL USE NO.2 IN ORDER TO

MINIMISE HIS LOSSES, THEREFORE, THE SOLUTION OF THE PROBLEM IS

OPTIMAL STRATEGY FOR A IS III
OPTIMAL STRATEGY FOR B IS 2
A R I T H M E T I C M E T H O D / S H O RT C U T
METHOD/ODDS METHOD

IT PROVIDES AN EASY METHOD FOR FINDING THE

OPTIMUM STRATEGIES FOR EACH PLAYER IN A 2X2
GAME. IT CONSISTS OF FOLLOWING STEPS:

STEP I: SUBTRACT THE TWO DIGITS IN COLUMN 1 AND

WRITE THEM UNDER COLUMN 2, IGNORING SIGN.

STEP II: SUBTRACT THE TWO DIGITS IN COLUMN 2 AND

WRITE THEM UNDER COLUMN 1, IGNORING SIGN.

STEP III: SUBTRACT THE TWO DIGITS IN ROW 1 AND

WRITE THEM AGAINST ROW 2,IGNORING SIGN.

STEP IV: SUBTRACT THE TWO DIGITS IN ROW 2 AND

WRITE THEM AGAINST ROW 1,IGNORING SIGN.
 QUESTION 4
FIND THE OPTIMUM STRATEGIES & VALUE OF THE
GAME FOR THE TWO PLAYERS FROM THE FOLLOWING
PAYOFF MATRIX Player B

I II
I 4 2
Player A
3 3/5
II 3 6
2 2/5
4 1
4/5 1/5
SOLUTION
CLEARLY THE ABOVE MATRIX HAS NO SADDLE POINT.
NOW WE SOLVE IT BY ODDMENT METHOD AS FOLLOWS:
STEP I: SUBTRACT THE TWO DIGITS IN COLUMN I AND WRITE THEM UNDER

COLUMN II, IGNORING SIGN.

STEP II: SUBTRACT THE TWO DIGITS IN COLUMN II AND WRITE THEM

UNDER COLUMN I, IGNORING SIGN.

 Player B

I II
Player A I 4 2 3 3/5
II 3 6 2 2/5

4 1
4/5 1/5

TO FIND THE VALUE OF THE GAME

USING AS ODDMENTS

B CHOOSE I ; VALUE OF GAME, V= 4 X 3/5 + 3 X 2/5 = 18/5

B CHOOSE II ; VALUE OF GAME, V= 2 X 3/5 + 6 X 2/5 = 18/5

USING BS ODDMENTS

A CHOOSE I ; VALUE OF GAME, V= 4 X 4/5 + 2 X 1/5 = 18/5

 QUESTION4.
REDUCE THE GAME BY DOMINANCE & FIND THE VALUE OF GAME

Player B

I II III IV
I 3 2 4 0
Player A

II 3 4 2 4
III 4 2 4 0
IV 0 4 0 8

SOLUTION

CLEARLY THIS MATRIX HAS NO SADDLE POINT .

SO WE IMPROVE IT BY DOMINANCE PRINCIPLE.
FROM PLAYER AS POINT OF VIEW ; FIRST ROW IS DOMINATED BY THIRD ROW.

THEREFORE, DELETING FIRST ROW ,WE GET

Player B

I II III IV
II 3 4 2 4
Player A
III 4 2 4 0
IV 0 4 0 8

FROM PLAYER BS POINT OF VIEW ; FIRST COLUMN IS DOMINATED

BY THIRD COLUMN THEREFORE, DELETING FIRST COLUMN ,WE GET

Player B

II III IV
II 4 2 4
Player A
III 2 4 0
IV 4 0 8
CLEARLY IN LAST MATRIX NO SINGLE ROW OR COLUMN DOMINATES ANOTHER
Player B
ROW OR COLUMN .
II III IV
II

Player A
4 2 4
III 2 4 0
IV 4 0 8
HOWEVER, IIND COLUMN IS DOMINATED BY THE AVERAGE OF IIIRD AND IVTH COLUMN

WHICH IS (2 + 4)/2 = 3

(4 + 0)/ 2 = 2

(0 + 8)/ 2 = 4

ND
HENCE II COLUMN IS DELETED, RESULTING IN FOLLOWING MATRIX

III IV
II 2 4
III 4 0
IV 0 8
AGAIN IIND ROW IS DOMINATED BY THE AVERAGE OF IIIRD ROW AND
TH
IV ROW WHICH GIVES [( 4+0)/2, (0+8)/2] = (2, 4).
Player B
THEREFORE IIND ROW IS DELETED, WE GET
III IV

A
Player A
III 4 0

Player
8 8/12 2/3
IV 0 8 4/12 1/3
4
8 4
2/3
CLEARLY THE ABOVE MATRIX 1/3
HAS NO SADDLE POINT.
NOW WE SOLVE IT BY ODDMENT METHOD AS FOLLOWS
STEP I: SUBTRACT THE TWO DIGITS IN COLUMN I AND WRITE THEM

STEP UNDER COLUMN

II: SUBTRACT II,TWO
THE IGNORING
DIGITSSIGN.
IN COLUMN II AND WRITE THEM

UNDER COLUMN I, IGNORING SIGN.

STEP III: SIMILARILY PROCEEDS FOR THE TWO ROWS
THUS THE COMPLETE SOLUTION TO THE GIVEN PROBLEM IS
OPTIMAL STRATEGY FOR PLAYER A IS (0, 0, 2/3, 1/3)
OPTIMAL STRATEGY FOR PLAYER B IS (0, 0, 2/3, 1/3)
 ALGEBRAIC METHOD
For any 2 X 2 two person zero sum game without any
saddle point, having pay off matrix for player A as
Player B
B1 B2
Pl A a11 a12
1
ay
er A2 a21 a22
A
If x1 and x2 are the probabilities of player A selecting
strategies A1 and A2 respectively, and y1 and y2 are the
probabilities of player B selecting strategies B1 and B2
respectively
a22 then
a21
x1 = and x2 = 1 x1
(a11 + a22) (a12 + a21 )
a22 a12
y1 = and y2 = 1 y1
(a11 + a22) (a12 + a21 )

a11a22 a12a21
V =
(a +a ) (a +a )
 GRAPHICALMETHOD

GRAPHICAL METHOD IS APPLICABLE TO ONLY

THOSE GAMES IN WHICH ONE OF THE PLAYERS
HAS TWO STRATEGIES.
THE FIRST STEP IS TO LOOK FOR A SADDLE
POINT.
THE SECOND STEP IS TO SEE WHETHER THE
GAME IS REDUCED BY DOMINANCE OR NOT.
CONSIDER A 2 X n GAME
y1 y2 . yn
x1 a11 a12 . a1n
x2= 1-x1 a21 a22 .. a2n
AS EXPECTED PAYOFFS CORRESPONDING TO BS PURE
STATEGIES ARE

BS PURE AS EXPECTED PAYOFF

STRATEGIES
1 a11x1+a21(1-x1)=(a11-a21)x1+a21
2 a12x1+a22(1-x1)=(a12-a22)x1+a22
.
n a1nx1+a2n(1-x1)=(a1n-a2n)x1+a2n

THESE n LINES CAN BE PLOTTED AS FUNCTIONS OF X 1.

SINCE PLAYER A WISHES TO MAXIMISE HIS MINIMUM EXPECTED
PAYOFF, THE TWO LINES WHICH INTERSECT AT THE HIGHEST
POINT OF THE LOWER BOUND SHOW THE TWO COURSES OF
ACTION PLAYER B SHOULD CHOOSE IN HIS BEST STRATEGY.
WE CAN THUS IMMEDIATELY REDUCE THE 2 X n GAME TO 2 X 2
GAME.
 Question 5
Solve the following game:
Player B
1 2 3 4 5
-5 5 0 -1 8
Player A

1
8 -4 -1 6 -5
2

SOLUTION
Clearly the given matrix has no saddle point.
If probability of player As playing 1&2 is denoted by x 1 & x2
respectively where x2 = 1- x1, then the expected payoff to
the player A will be:
Bs Pure Strategy As Expected Payoff
-5 x1 + 8 (1- x1) = -13 x1 + 8
1
5 x1 - 4 (1- x1) = 9 x1 - 4
2
0. x1 -1 (1- x1) = x1 -1
3
4 -1 x1 + 6 (1- x1) = -7 x1 + 6

5 8 x1 -5 (1- x1) = 13 x1 + 5
These 5 lines can be plotted as functions of x1 as follows:
Draw two parallel line A1 & A2 which represents
two strategies of A.

Now we represents Bs various strategies.