EMG181

SW GAME THEORY
4TH Quarter SY 2011-2012

1) The game shown below give As payoff. Determine the value of x and y that will make entry
(2,2) of the game a saddle point.

Answer:

B1 B2 B3 Row Minimum
A1 1 y 6 Y<=5 so that row
minimum is 1
A2 x 5 10 x>=5 so that row
minimum is 5
(Max)
A3 6 2 3 2
Column x>=5 so that the Y<=5 so that the 10
Maximum column maximum column maximum
is x>=5 is 5 (Min)

Therefore, x >= 5, y <= 5 . Value of the game = 5 which is at (2,2).

2) Two companies promote two competing products. Each product currently controls 50% of the
market. Because of recent improvements in the two products, each company is preparing to
launch an advertisement campaign. If neither company advertises equal market share will
continue. If either company launches a stronger campaign, the other is certain to lose a
proportional percentage of its customers. A survey of the market shows that 55% of potential
customers can be reached through television, 35% through newspapers and 10% through radio.
a) Formulate the problem as a two-person zero-sum game, and select the appropriate
advertisement media for each of the two companies.
b) Determine a range for the value of the game. Can each company operate with a single pure
strategy?

Answer:

a) Define the following strategies:

Strategy Description
1 Do nothing
2 Use TV
3 Use Radio
4 Use Newspaper
5 Use TV and Radio
6 Use TV and Newspaper
7 Use Radio and Newspaper
8 Use TV, Radio and Newspaper
The payoff is the additional percentage of customers reached by company A.

Strategy Company B
1 2 3 4 5 6 7 8 Row
Minimum
Share 0% 55% 35% 10% 90% 65% 45% 100%
1 0% 0 -55 -35 -10 -90 -65 -45 -100 -100
2 55% 55 0 20 45 -35 -10 10 -45 -45
Company 3 35% 35 -20 0 25 -55 -30 -10 -65 -65
A 4 10% 10 -45 -25 0 -80 -55 -35 -90 -90
5 90% 90 35 55 80 0 25 45 -10 -10
6 65% 65 10 30 55 -25 0 20 -35 -35
7 45% 45 -10 10 35 -45 -20 0 -55 -55
8 100% 100 45 65 90 10 35 55 0 0 (Max)
Column 100 35 65 90 10 35 55 0
Maximum (Min)

b) The game has a saddle point at (8,8). This means that both companies venture into using all
three media. The value of the game is zero (fair game).

3) Below is a two-person, zero-sum game based on Player As payoff:

Strategy Player B
B1 B2 B3 B4
A1 1 9 6 0
Player A
A2 2 9 8 4
A3 -3 -4 10 -3
A4 -7 -4 -6 -5

a) Specify the range for the value of the game.

b) Formulate the game by linear programming.
c) Solve the game graphically. Determine the optimal strategy and value of the game. Who
wins the game?

Answer:

Strategy Player B
B1 B2 B3 B4 Row
Minimum
Player A A1 1 9 6 0 0
A2 2 9 8 4 2 (Max)
A3 -3 -4 10 -3 -4
A4 -7 -4 -6 -5 -7
Column Maximum 2 (Min) 9 10 4
 a) V = 2
b) LP Formulation:

Player As Linear Program:

Maximize z = V
Subject to:
V - p1 - 2p2 + 3p3 + 7p4 <= 0
V - 9p1 - 9p2 + 4p3 + 4p4 <= 0
V - 6p1 - 8p2 - 10p3 + 6p4 <= 0
V - 4p2 + 3p3 + 5p4 <= 0
p1 + p2 + p3 + p4 = 1
p1, p2, p3, p4 >= 0
V unrestricted

Player Bs Linear Program:

Minimize z = V
Subject to:
V - q1 - 9q2 - 6q3 >= 0
V - 2q1 - 9q2 - 8q3 - 4q4 >= 0
V + 3q1 + 4q2 - 10q3 + 3q4 >= 0
V + 7q1 + 4q2 + 6q3 + 5q4 >= 0
q1 + q2 + q3 + q4 = 1
q1, q2, q3, q4 >= 0
V unrestricted

c) Optimal Strategy: Player A plays A2 while player B plays B1.

Value of the Game, V = 2
Player A wins the game.

Since the game used pure strategy, no need to solve graphically.

NOTE: THERE WAS A TYPOGRAPHICAL ERROR IN THE DATA: Entry (2,2) should be -2. So the game
matrix should be ,

Strategy Player B
B1 B2 B3 B4 Row
Minimum
Player A A1 1 9 6 0 0 (Max)
A2 -2 9 8 4 -2
A3 -3 -4 10 -3 -4
A4 -7 -4 -6 -5 -7
Column Maximum 1 (Min) 9 10 4
 a) 0 <= V <= 1 (Mixed Strategy)

b) LP Formulation:

Player As Linear Program:

Maximize z = V
Subject to:
V - p1 + 2p2 + 3p3 + 7p4 <= 0
V - 9p1 - 9p2 + 4p3 + 4p4 <= 0
V - 6p1 - 8p2 - 10p3 + 6p4 <= 0
V - 4p2 + 3p3 + 5p4 <= 0
p1 + p2 + p3 + p4 = 1
p1, p2, p3, p4 >= 0
V unrestricted

Player Bs Linear Program:

Minimize z = V
Subject to:
V - q1 - 9q2 - 6q3 >= 0
V + 2q1 - 9q2 - 8q3 - 4q4 >= 0
V + 3q1 + 4q2 - 10q3 + 3q4 >= 0
V + 7q1 + 4q2 + 6q3 + 5q4 >= 0
q1 + q2 + q3 + q4 = 1
q1, q2, q3, q4 >= 0
V unrestricted

c) Graphical Solution:

Dominance:

Strategy Player B
B1 B2 B3 B4
A1 1 9 6 0
Player A
A2 -2 9 8 4
A3 -3 -4 10 -3
A4 -7 -4 -6 -5

A4 dominated by A1
B3 dominated by B1
A3 dominated by A1
B2 dominated by B1 and B4

Player B
Probability Strategy
Player B1 B4
A P A1 1 0
1p A2 -2 4
Player A:

Bs Choices As Expected Payoff

B1 p - 2(1 p) = p 2 + 2p = 3p - 2
B4 0p + 4(1 - p) = 4 - 4p

V
6 6

5 5

4 4

3 3

2 2

1 1

0 0
p=0 p=1

-1 p=?

-2

VB1 = VB4
3p 2 = 4 - 4p
7p = 6
p = 6/7
1 p = 1/7

Optimal Strategy: Player A will play

A1 6/7 of the time;
A2 1/7 of the time;
 A3 0 of the time;
A4 0 of the time.
Value of the game is: V = 3(6/7) 2 = 4/7
Player A wins the game.

Player B:

Player B
Strategy q 1-q
Player
B1 B4
A
A1 1 0
A2 -2 4

As Choices Bs Expected Payoff

A1 q + 0(1 q) = q
A2 -2p + 4(1 - q) = -2q + 4 - 4q = -6q + 4

VA1 = VA4
q = -6q + 4
7q = 4
q = 4/7
1 - q = 1 - 4/7 = 3/7

Optimal Decision: Player B will play

B1 4/7 of the time;
B2 0 of the time;
B3 0 of the time;
B4 3/7 of the time.

Value of the game is: V = q = 4/7

Player A wins the game.