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Game Theory & Strategy
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Lecture 2
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& Dr. Win Win Myo
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Professor (Head)
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Lecture 2
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ZERO-SUM GAMES
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➢ Two-Person
& ✓ Value of game
✓ Movement Diagram
S ✓ Saddle Point
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✓ Pure Strategy
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✓ Dominance Strategy
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Objectives:
E • Understand the principles of zero-sum,
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two-player game
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& principle.
S • Solve mixed strategy games.
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E Lesson Objectives
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E By the end of this lesson, the students will be able
O to find the value of game
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to find saddle point in pure strategy
& to design the movement diagram
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E Zero-sum game
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& (+1)+(-1)=0
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Two person Zero Sum Games
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H Two-person means there are two competing players in the game.
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Zero-sum means the gain (or loss) for one player is equal to the
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& corresponding loss (or gain) for the other player.

S The gain and loss balance out so that there is a zero-sum for the game.
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A What one player wins, the other player loses.
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The Payoff Matrix:
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Row Player,
Row Player,
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she has two
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strategies, Top ? Left
strategies,
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and Bottom
Danny and Right
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Left Right
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Lily Top 4,7 5, 8
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Bottom 2, 1 3, 6
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The Payoff Matrix:
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If Lily chooses
If Lily chooses
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“Top”: Lily earns
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4 if Danny ?
5 if Danny
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chooses “Left”
Danny chooses “Right”
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Left Right
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Lily Top 4,7 5, 8
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Bottom 2, 1 3, 6
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A If Lily chooses If Lily chooses
T “Bottom”: Lily “Bottom”: Lily
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earns ?
earns
G 2 if Danny 3 if Danny
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E Example:
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In a matrix game, an outcome is a saddle point if the
TSaddle
Point
outcome is a minimum in its row and maximum in its
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column.
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the
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minimax are same numbers, and in those games there
point is saddle point.
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R Pure A game in which the best strategy for each player is to
AStrategy play one strategy throughout the game.
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A Pure Strategy
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Whenever an optimal pure strategy exists:
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the maximum of the row minimums equals the minimum of the
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the game is said to have a saddle point (the intersection of the
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the value of the saddle point is the value of the game
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A Movement Diagram (With Saddle Point)
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Example 1
T Saddle Point
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H T H T
Max Min
H (0,0) (1,-1) H (0,0) (1,-1)
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T T (-1,1) (2,-2) T (-1,1) (2,-2)
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A Movement Diagram (With No Saddle Point)
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Example 1
T No Saddle Point
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H T H T
Max Min
H 2 0 H 2 0
S Rose Rose
T T -5 3 T -5 3
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A No Saddle point.
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E What should player do?
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to select strategies.
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A Pure Strategy (Saddle Point Method)
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• At the right of each row, Write the row minimum and
E Under line the largest of them.
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R • At the bottom of each column. Write the column maximum
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• If these two elements are equal, the corresponding cell is
T the saddle point and the value is the value of the game.
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A Example 2
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Colin
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Row
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R H 0 1 0 maximin
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& T -1 2 -1

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Value of game = 0
minimax
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A Example 3 Real Example
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T Competing for Car Sales

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Suppose that there are only two car dealer-ships in a
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take sales of new car from
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the other dealership over a
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strategies, assumed to be the
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Strategy Choices
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Strategy 1: Offer a cash rebate
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& Strategy 2: Offer free optional
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equipment on a
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A Strategy 3: Offer a 3.0% loan
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on a new vehicle.
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A Payoff Table: Number of Car Sales
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Gained Per Week by Dealership A
(or Lost Per Week by Dealership B)
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E Dealership B Step 1: Identify the
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R Cash Free 0%
Y Rebate Options Loan row (for Player A).
& Dealership A b1 b2 b3 Step 2: For Player A, select
the strategy that provides
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Free Options a2 -3 3 -1
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A 0% Loan a3 3 -2 0
the maximin).
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A Identifying Maximin and Best Strategy
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Cash Free 0%
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R Dealership A b1 b2 b3 Minimum
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& Cash Rebate a1 2 2 1 1
Free Options a2 -3 3 -1 -3
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0% Loan a3 3 -2 0 -2
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A Payoff
Best Strategy
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For Player A
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H Step 3: Identify the maximum payoff for each column
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(for Player B).
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& Step 4: For Player B, select the strategy that provides

S the minimum of the column maximums

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Identifying Minimax and Best Strategy
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T Dealership B Best Strategy

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Cash Free 0%
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Rebate Options Loan
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Cash Rebate a1 2 2 1
Free Options a2 -3 3 -1
S 0% Loan a3 3 -2 0 Minimax
T Payoff
R Column Maximum 3 3 1
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A Pure Strategy
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E Whenever an optimal pure strategy exists:
T the maximum of the row minimums equals the
H minimum of the column maximums (Player A’s maximin
E equals Player B’s minimax)
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the game is said to have a saddle point (the intersection
Y of the optimal strategies)
& the value of the saddle point is the value of the game
neither player can improve his/her outcome by changing
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strategies even if he/she learns in advance the
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A Pure Strategy Example
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E Saddle Point and Value of the Game Value of the
game is 1
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Dealership B
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Dealership A b1 b2 b3 Minimum
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& Cash Rebate a1 2 2 1 1
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Free Options a2 -3 3 -1 -3
T 0% Loan a3 3 -2 0 -2
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A Column Maximum 3 3 1
T Saddle
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T Pure Strategy Summary

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E Player A should choose Strategy a1 (offer a cash rebate).
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Player A can expect a gain of at least 1 vehicle sale per
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Player B should choose Strategy b3 (offer a 3.0% loan).
S Player B can expect a loss of no more than 1 vehicle sale per
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