Some crucial dimensions of a ‘Game’

• Access of information
…All the players have full or equal information?
…Influences your choice of strategy
…Bidding on e-commerce site  Equal Information
…Bidding for oil exploration  Unequal information on oil
reserve based on your survey

• The timing of the players’ actions

…Sequential or simultaneous moves?
…R&D race between Apple and Samsung to
launch a new product
…If any one, say Apple, has launched first, now
the other needs to decide its strategy
accordingly
Some crucial dimensions of a ‘Game’
• Repetitions of the game
…Played once or played repeatedly?
…If repeatedly, finite or infinite repetitions, with the same or
changing opponents
…Repetition may produce different outcome.
…Long term vs Short term relationships

• The players’ interests (Co-operation)

…In total conflicts or some
commonality?
…Pure competition game  my loss is your
gain
…Or coordination to cooperate  mutual
benefits are possible
Zero Sum Games

… Representation of zero sum games

… Dominance and saddle point
… Pure vs Mixed strategy
… Graphical and Swastic method
… Property of Indifference
… Linear Programming vs two person zero sum games
Zero Sum Games

• The game is a Zero Sum Game, if net gain of one player is

always equal to the net loss of the other.

Example: Matching Pennies

Player II

Head Tail

Head 1, -1 -1, 1
Player I

Tail -1, 1 1, -1
Representation of Zero Sum Games

• Only the payoff of Player I is shown as the payoff of

Player II is negative of that

Player II
Matching
pennies Head Tail

Head 1 -1
Player I

Tail -1 1
Campaign Game

• A Republican and Democrat

campaigning for an election
• Two campaigning days are left
• Two key cities, DC and NYC yet to be
covered.
• Both consider the following 3 options:
1. Spend one day in each city
2. Spend both days in city DC
3. Spend both days in city NYC Democrat
DC + NYC DC Only NYC Only

DC + NYC 1 2 4
Republican

DC Only 1 0 5
NYC Only 0 1 -1
Applying Dominance Principle in Zero Sum Games
• For player I, if pij ≥ pkj for all j, then row i dominates row k.
… Strategy k can be dropped by player I.
• For Player II, If pij ≤ pik for all i, then column j dominates column k.
… Strategy k can be dropped by player II.

Democrat
DC + NYC DC Only NYC Only

1 2 4
Republican

DC + NYC

DC Only 1 0 5
NYC Only 0 1 -1 Dominated by 1

Now dominated
by 1 as well as 2

The
The resulting
resulting payoff
payoff is
is called
called thethe Value
Value of
of the
the game.
game.
IfIf the
the game
game has
has value
value zero,
zero, itit is
is called
called aa Fair
Fair Game.
Game.
Minimax Approach

Player 2 Guaranteed

X Y Z Payoff (Player 1)

A -3 -2 6 -3
Player 1

B 2 0 2 0
C 5 -2 -4 -4
Guaranteed payoff
(Player 2) 5 06

Player 1’s objective: To maximize his minimum payoff

Player 2’s objective: To minimize his maximum loss
Maximin payoff = Minimax payoff = 0 (Saddle Point)
Note that it is a fair game (value of the game is zero)
Saddle point (if exists) coincides with Nash Equilibrium
Minimax Approach: Saddle Point

• If MaxiMin(1) = MiniMax(2), and same entry in the table

corresponds to both, then we have a Stable Solution.
• This entry is the Saddle Point of the Payoff Table.
• Minimum in its row and Maximum in its column.
• Saddle point may not always exist, but if it does, it is the
optimal solution of the game for both players.
• When the saddle point exists, neither player has any
motive for deviating from the Minimax/Maximin strategy.
• Even though the action of opponent is predictable, it
does not give any advantage to any player.
Exercise: Saddle Point
Player 2
Saddle
Point I II III IV V Saddle Point

A 1 3 1 -1 3
Player 1

B -3 2 -1 4 0
C 4 5 1 3 2
D 3 4 2 5 4
Player 2
Nash Eq
I II III IV V
A 1,-1 3,-3 1,-1 -1,1 3,-3
Player 1

B -3,3 2,-2 -1,1 4,-4 0,0

Nash Eq
C 4,-4 5,-5 1,-1 3,-3 2,-2
D 3,-3 4,-4 2,-2 5,-5 4,-4
Exercise – Labor Wage Game

The labor union and management of a particular company have been

negotiating a new labor contract. However, negotiations have now
come to an impasse, with management making a "final" offer of a wage
increase of $1.10 per hour and the union making a "final" demand of a
$1.60 per hour increase. Therefore, both sides have agreed to let an
impartial arbitrator set the wage increase somewhere between $1.10
and $1.60 per hour.
The arbitrator has asked each side to submit to her a confidential
proposal for a fair and economically reasonable wage increase
(rounded to nearest 10 cents). From past experience, both sides know
that this arbitrator normally accepts the proposal of the side that gives
the most from its final figure. If neither side changes its final figure, or
if they both in the same amount, then the arbitrator normally
compromises halfway between ($1.35 in this case). Each side now
needs to determine what wage increase to propose for its own
maximum advantage.
Formulate this problem as a two-person game.
Solution – Labor Wage Game

Management
1.10 1.20 1.30 1.40 1.50 1.60
1.10 0 0 0 0 0 25 0
Labor Union

1.20 10 10 10 10 25 50 10
1.30 20 20 20 25 40 50 20
1.40 30 30 25 30 40 50 25
1.50 40 25 20 30 40 50 20
1.60 25 10 20 30 40 50 10
40 30 25 30 40 50
No saddle point (Motivation for mixed strategy)

Player 2
Left Center Right
Top 0 -2 2 -2

Player 1
Middle 3 4 -3 -3
Bottom 2 3 -4 -4
3 4 2
Player-2 switches
It is not a stable situation
to Center
It is not in the interest of either
player to consistently stick to the
same strategy.
Player-1 1 would switch
chooses Top to Middle Opponent takes advantage if the
strategy is known.
Better to keep him guessing.
2 switches How  Mixed Strategy
to Right