Game Theory

Lecture Objectives
At the end of the lecture each student should be able to
understand :
• Game, Characteristics of a game, Two person zero
sum game, Strategy, Pure strategy, Mixed Strategy,
Payoff.
• Maximin and minimax Criteria of Optimality, Saddle
Point.
• Dominance Property, Arithmetic Method for 2×2
game, Oddments, Algebraic Method for 2×2 game.
• Algebraic Method for 2×n or m×2 game, Graphical
Method.
• Solution of 3×3 or Higher Games, Method of Linear
Programming.
 Game

It is an activity between two or more

persons involving actions by each one of
them (according to a set of rules) and
results in some gain (+ve or -ve) for
each.
 Characteristics of Games

 There are finite number of participants or

competitors. If the number is two, the game is called
two person game; for number>2 it is called n-person
game.
 Each participant has a finite number of possible
courses of action.
 Each participant must know all the course of action
available to others but must do not know which of
these will be chosen.
 Characteristics of Games

 A play of the game is said to occur when each

player chooses one of his courses of action. The
choices are assumed to be made simultaneously, so
that no participant knows the choice of other until he
has decided his own.
 After all participants have chosen a course of action,
their respective gains are finite.
 The gain of the participant depends upon his own
actions as well as those of others.
 Some Terms

Zero Sum Game: A game in which the sum of payments

to all the players, after the play of the game is zero is
called zero sum game. Here the gain of players that
win is exactly equal to the loss of the players that
lose.
Two Person Zero Sum Game: If the number of the
players in a zero sum game is two, it is known as two
person zero sum game or rectangular game.
Strategy: It is the predetermined rule by which a player
decides his course of action.
 Some Terms
Pure Strategy: It is the decision rule to select to always
select a particular course of action.
Mixed Strategy: It is decision, in advance of all plays, to use
all or some of the available courses of action in some fixed
proportion. Thus the mixed strategy is a selection among
pure strategies with some fixed probabilities (proportions).
Payoff: It is the outcome of the game.
Payoff Matrix: It is the table showing the amounts received
by the player named at the left hand side after all possible
plays of the game.
The payment is made by the player named at the top of the
table.
 Example
The next table illustrates a game, where competitors A
and B are assumed to be equal in abilities and
intelligence. A has a choice of strategies 1 and 2, while
B has the strategies 3 and 4.
Competitor B
Competitor A

Strategy-3 Strategy-4

Strategy-1 +4 +6

Strategy-2 +3 +5
 Competitor B

Competitor A
Strategy-3 Strategy-4

Strategy-1 +4 +6

Strategy-2 +3 +5

Both competitors know the payoff for every possible strategies. It

should be noted that the game favors competitors A since all
values are positive. Values that favor B would be negative. Based
upon these conditions, game is biased against B. Since B must
play the game he will play to minimize his losses.
Various possible Strategies for the two competitors are
1. A wins highest game value if he plays strategy 1 all the time
since it has the higher values than strategy 2.
2. B realizes this situation and plays strategy 3 in order to
minimize his losses since the value of 4 in strategy 3 lower
than the value of 6 in strategy 4
 Example
Competitor B
Strategy-3 Strategy-4 Minimum of
Competitor A

Row

Strategy-1 +4 +6 4

Strategy-2 +3 +5 3

Maximum of 4 6
Column

Thus the game value must be 4 since A wins 4 points while B

loses 4 points each time the game is played.
The game value is the average winnings per play over long
number of plays.
 Value of a Game
A game is solved when the following has been
determined:
a. The average amount per play that A will win in the
long run if A and B use their best strategies. It is
called the value of the game.
b. The strategy that A should use to ensure that his
average gain per play is at least equal to the value of
the game.
c. The strategy that B should use to ensure that his
average loss per play is not than the value of the
game.
 Optimal Strategy

If a player has to choose out of the worst

possible outcomes of his potential strategies,
he will choose the strategy that corresponds
to the best of these worst outcomes. Such
strategy is called the optimum strategy.
 Maximin or minimax Criteria
Minimax Criterion:
 A player should select the mixed strategy that
minimizes the maximum expected losses to himself
Maximin Criterion
 Or to maximizes the minimum expected payoffs
Minimax Theorem
 If mixed strategies are allowed, the pair of mixed
strategies that is optimal according to the minimax
criterion provides a stable solution, so that neither
player can do better by unilaterally changing her or
his strategy
 Example
In a certain game, player A has three possible choices L,
M and N, while player b has two possible choices P and
Q. Payments are to be made according the choices made.
Choices Payments
L, P A pays B Tk. 3
L, Q B pays A Tk. 3
M, P A pays B Tk. 2
M,Q B pays A Tk. 4
N, P B pays A Tk. 2
N, Q B pays A Tk. 3

What are the best strategies for player A and B in this

game? What is the value of the game for A and B?
 Example
Let the positive number represent a payment
from B to A and the negative number a payment
from A to B. Then the payment matrix is given by:

Competitor B
Competitor A

P Q

L -3 3

M -2 4

N 2 3
 Example
 When player A plays his first strategy L he may gain -3 or 3
depending upon player B’s strategy. He can ensure at least a gain of
min{-3, 3}=-3. similarly for second strategy gain is -2 and for third
strategy gain is 2.
 By selecting the third pure strategy player A can maximize his
minimum gain. This is called maximin strategy.
Competitor B
Minimum
Competitor A

P Q
of Row
L -3 3 -3
M -2 4 -2
N 2 3 (2)
Maximum of (2) 4
Column
 Example
 On the other hand player B plays his first strategy P he may lose
maximum of {-3, -2, 2}=2 similarly for second strategy Q he may
lose maximum of {3, 4, 3} =4
 By selecting the first pure strategy player B can minimize his
maximum loss. This is called minimax strategy.

Competitor B
Minimum
Competitor A

P Q
of Row
L -3 3 -3
M -2 4 -2
N 2 3 (2)
Maximum of (2) 4
Column
 Example
 It is seen from the conditions governing the minimax criterion that
the minimax (upper) value is greater than or equal to the maximin
(lower) value. When the two are equal (minimax value=maximin
value), the corresponding strategies are called optimal strategies
and the game is said to have a sddle point or equilibrium point. The
value of the game is given by the sddle point and equal to the
maximin or minimax value.
Competitor B
Minimum
Competitor A

P Q
of Row
L -3 3 -3
M -2 4 -2
N 2 3 (2)
Maximum of (2) 4
Column
 Example

Competitor B
Minimum
Competitor A
P Q
of Row
L -3 3 -3
M -2 4 -2
N 2 3 (2)
Maximum of (2) 4
Column

Thus the game value is 2.

A game is said to be fair if maximin value =minimax value =0
A game is said to be strictly determinable if maximin value
=minimax value ≠ 0
 How to Determine a Saddle Point

 1. At the right of each row, write the row minimum and ring the
largest of them.
 2. At the bottom of each column, write the column maximum and
ring the smallest of them.
 3. If these two elements are same, the cell where they corresponding
row and column meet is a saddle point and that cell is the value of
the game.
 4. If the two ringed elements are not same, there is no saddle point,
and the value of the game lies between these two values.
 5. If there are more than one saddle points then there will be more
than one solution, each solution corresponding to each saddle point.
 6. If there is no saddle point, the two players cannot use pure
strategies as their optimal strategies; they must mix some or all of
their courses of action, resulting in mixed strategies.
 Example
Find the saddle point of the following game:
Competitor B

P Q R
Competitor A

L 1 13 11

M -9 5 -11

N 0 -3 13
 Example
Competitor B
Minimum
P Q R of Row
Competitor A

L 1 13 11

M -9 5 -11

N 0 -3 13
Maximum
of Column

Saddle point: (1, 1) , Strategies Player A, L and Player

B, P. The game value:+1.
 Example
Following game has no saddle point. Competitor B

Competitor A
L M

P -4 3
Q -3 -7

Competitor B
Minimum
Competitor A

L M of Row

P -4 3 -4

Q -3 -7 -7

Maximum -3 3
of Column
 Example
Consider the game G with the following pay off
Competitor B

L M
Competitor A

P 2 6

Q -2 λ

a. Show that G is strictly determinable, whatever λ

may be.
b. Determine the value of the game.
 Example
Ignoring whatever the value of the λ may be, the given
payoff matrix represents
Competitor B
Minimum
Competitor A
L M of Row

P 2 6 (2)

Q -2 λ -2

Maximum (2) 6
of Column

 Maximin value =2 and Minimax value=2

 The game G is strictly determinable, whatever λ may be.
 The value of the game =2. Strategy: Player A, P , Player B, L.
 Example
Consider the game G with the following pay off.
For what value of λ, the game is strictly
determinable?
Competitor B

P Q R
Competitor A

L λ 6 2

M -1 λ -7

N -2 4 λ
 Example
Competitor B
Minimum of
P Q R
Row
Competitor A

L λ 6 2 (2)

M -1 λ -7 -7

N -2 4 λ -2
Maximum of
(-1) 6 2
Column
Maximin Value=2 and Minimax value=-1
So the game value lies between -1 and 2, that is -1≤V≤2
So for strictly determinable game since maximin
value=minimax value, we must have -1≤ λ≤2
 Home Work

Similar problems from any book