GAME THEORY

DR. MANOJ MISHRA

 SIMULATION
• EXPERIMENTATION
• TOO DANGEROUS IN THE LAB
• MONTE CARLO ANALYSIS (TWO AMERIRICAN
MATHEMATICIANS VON NEUMANN AND ULAN FOUND
ACTUAL EXPERIMENT TOO DANGEROUS
• SIMILAR TO GAMBLERS ROULETTE TABLE HENCE MONTE
CARLO
 COMPETITIVE SITUATIONS
• MARKETING DIFFERENT BRANDS
• CAMPAIGNING FOR ELECTIONS
• FIGHTING MILITARY BATTLES
• CHARACTERISTICS OF COMPETITIVE GAME
1. NUMBER OF PLAYERS IS FINITE
2. EACH PLAYER HAS FINITE COURSE OF ACTION
3. EACH PLAYER ADAPTS ANY ONE COURSE OF ACTION
4. PAYOFF (BENEFIT OR LOSS) IS THE RESULT OF ACTION
5. PLAYERS DO NOT COMMUNICATE
6. PLAYERS ARE AWARE OF THE RULES BEFORE THE GAME
 TYPES OF GAME
• N-PERSON GAME
• ZERO-SUM GAME
• STRATEGIES
• PURE STRATEGY - COURSE OF ACTION IRRESPECTIVE OF OPPONENTS
COURSE OF ACTION
• MIXED STRATEGY – ACTION AS PER PRE-ASSIGNED PROBABILITIES
 2 FINGER MORRA GAME
• PERSON A AND B B ONE B TWO
SIMULTATNEOUSLY RAISE FINGER FINGER
THEIR HANDS DISPLAYING A ONE -10 5
ONE OR TWO FINGERS FINGER
• PAY OFF MATRIX A TWO 5 -10
• PAYMENTS TO B IN TABLE FINGER

• SAME DISPLAY A GETS 10 FOR A

DIFFERENT GETS 5 FOR B
 SOLUTION TO TWO PERSON ZERO
SUM GAME
• Maximin – Minimax Principle A and B without showing to each other
place a coin. If denomination is same
• α = max{min(𝑎𝑖𝑗)} Player A will take both, otherwise B will
𝑖 𝑗
take it. (A has 1 and 2 rupee coins B has
• β = m𝑖𝑛{m𝑎𝑥 𝑎𝑖𝑗 } 1, 2 and 5 rupee coins)
𝑖 𝑗
• α = β - v (saddle point) use Pure Player A Player B
Strategy other wise Mixed Strategy (α
<β) B1 B2 B5
• α cannot be greater than β A1 1 -1 -1
• Fair Game if value is zero
A2 -2 2 -2
 SOLUTION TO TWO PERSON ZERO
SUM GAME
1. The minimum pay-off is circled. • SOLUTION
2. Maximum pay-off is boxed in each • STRATEGY FOR A IS (A1)
column
• STRATEGY FOR B IS (B5)
3. -1 is boxed as well as circled therefore
• VALUE OF THE GAME IS V = -1
the game has a saddle point (1,3)
Player A Player B

B1 B2 B5

A1 1 -1 -1

A2 -2 2 -2
 GAME THEORY:
• A game is a competitive activity in which
players contend with each other following a set
of rules. A game consists of elements such as
players, actions, information, strategies,
outcomes, payoffs and equilbria. The players
in the game are rival companies, hence the
decision makers in the organization take on
the roles of rival companies.
 GAME THEORY:
Game theory helps organizations to overcome
competition. Organizations have to analyze,
adjust, and even change direction in the middle,
to make most effective use of game theory.
Using game theory , an organization can work
out the strategies which will be relevant for it to
use under different situations, and can decide
whether it prefers high risk or low risk options.
 TECHNIQUES OF GAME THEORY
Game theory involves analyzing the game through
the other players eyes. This process involves putting
the player in the shoes of his opponents to
understand how they will counter the players moves.
This method helps in avoiding the narrow focus on a
single competitor. The techniques includes:
Fish bowl
Red Team/ Blue Team
Future Mapping
 Fish Bowl / : Red Team /Blue Team
• In this exercise everybody bring in his/her independent views.
Advocates and other experts present their data and debate one
another and, while the decision makers evaluate the quality of
the facts at hand expose weak positions and analyze the
strategic options.
• Red Team/ Blue Team: In this managers are put in charge of
teams representing major competitors and they plan the
strategies they would be using to beat the organization. This
type of teamwork and research increases the organizations
competitive intelligence and quickens its reflexes by building
competitive awareness into its actions.
Future Mapping:

This is a name for a way of looking at different scenario

for the future. In this method decision makers look at
several alternative futures or end states, for the
company business, assign a probability to each one,
and identify the forces that will determine whether that
scenario will actually unfold.
 Problem
• A LABOUR UNION OF A FIRM IS NEGOTIATING A NEW FIVE-
YEAR SETTLEMENT REGARDING PAYMENTS WITH THE
MANGEMENT. THE UNION HAS THE FOLLOWING OPTION: ‘ A1
: AGRRESIVE BARGAINING A2 BARGAINING WITH REASON
AND A3 CONCILIATORY APPROACH. THE LIKELY MODE OF
RESPONSES FROM THE MANAGEMENT ARE B1 : AGRRESIVE
BARGAINING : BARGAINING WITH REASON AND B3
LEGALISTIC APPROACH B4 : CONCILIATORY APPROACH THE
PAY OFFS ARE INDICATED IN THE TABLE.
 PAY OFF
MANAGEMENT
B1 B2 B3 B4
U 15
N
A1 15 12 35
I
O 25
A2 14 8 10
N
A3 -5 4 11 0
 PROBLEM
8 -1
3 0
0 -2
-7 -4
 PROBLEM

6 12 7
7 9 8