GAME THEORY

Basic Terminologies
The following terminologies are commonly used in Game
theory:
 Player : Each participant (interested party) of a game is

called a player.
 Strategy : The strategy of a player is the predetermined

rule by which a player decides his course of action from

the list of courses of action during the game. A strategy
may be of two types:
a) Pure strategy - It is a decision, in advance of all plays,
always to choose a particular course of action.
b) Mixed strategy - It is a decision, in advance of all plays,
to choose a course of action for each play in accordance
with some particular probability distribution.
Contd…….
 Optimal strategy : The course of action which
maximizes the profit of a player or minimizes
his loss is called an optimal strategy.
 Payoff : The outcome of playing a game is

called payoff.
 Payoff matrix : When the players select their

particular strategies, the payoffs (gains or

losses) can be represented in the form of a
matrix called the payoff matrix.
Contd…..
 Saddle point : A saddle point is an element of
the payoff matrix, which is both the smallest
element in its row and the largest element in
its column. Furthermore, the saddle point is
also regarded as an equilibrium point in the
theory of games.
 Value of the game : It refers to the expected

outcome per play when players follow their

optimal strategy.
Two-Person Zero-Sum Game
A game with only two players is called a two-
person zero-sum game if the losses of one
player are equivalent to the gains of the other
so that the sum of their net gains is zero.
This game also known as rectangular game.
Pure Strategies
Player B
I II III IV V

I -2 0 0 5 3
Player A II 4 2 1 3 2
III -4 -3 0 -2 6
IV 5 3 -4 2 -6

Consider a two-person zero-sum game matrix which

represents payoff to the player A, Find the optimal
strategy, if any.
Dominance Property Of Reducing The
Size Of The Matrix
 We can sometimes reduce the size of a game’s pay off matrix by
eliminating a course of action which is so inferior to another as never
to be used. Such a course of action is said to be dominated by the
other. The concept of dominance is especially useful for the
evaluation of two-person zero-sum games where a saddle point does
not exist.
 General rule
1. If all the elements of a row, say kth, are less than or equal to the
corresponding elements of any other row, say rth, then kth row is
dominated by the rth row.
2. If all the elements of a column, say kth are greater than or equal to the
corresponding elements of any other column, say rth, then kth column is
dominated by rth column.
3. Omit dominated rows or columns.
4. If some linear combination of some rows dominates ith row, then ith row
will be deleted. Similar argument follows for columns.
EXAMPLE
 Reduce the size of the game for player’s A
and B in the following game.

B’s strategy
A’s I II III
strategy I 9 8 -7
II 3 -6 4
III 6 7 -7
Games Without Saddle Point- Mixed Strategies

 A mixed strategy game can be solved by

different solution methods such as

1.Algebraic method
2.Graphical method, and
3.Linear programming method.
Solution Methods Of Games Without
Saddle Points
 For any 22 two-person zero sum game
without any saddle point having the payoff
matrix for the player A
Solution Methods Of Games Without
Saddle Points
EXAMPLE
 Find the optimal strategies and worth for A
and B in the following game.

B’s strategy
A’s I II III
strategy I 9 8 -7
II 3 -6 4
III 6 7 -7
EXAMPLE
 Find the optimal strategies and worth for A
and B in the following game.

B’s strategy
A’s I II III
strategy I 12 -8 -2
II 6 7 3
III -10 -6 2
EXAMPLE 17
 A company is currently involved in negotiations with its union on
the upcoming wage contract. With the aid of an outside mediator,
the table below was constructed by the management group. The
pluses are to be interpreted as proposed wage increases while
minus figure indicates that a wage reduction is proposed. The
mediator informs the management group that he has been in
touch with the union and that they have constructed a table that
is comparable to the table developed by the management. Both
the company and the union must decide on an overall strategy
before negotiations begin. The management group understands
the relationship of company strategies to union strategies in the
following table but lacks specific knowledge of game theory to
select the best strategy ( or strategies) for the firm. Assist the
management on this problem. What game value and strategies
are available to the opposing groups?
 Conditional costs to company (in lac Rs)

Company Union strategies

strategies U1 U2 U3 U4

C1 +0.25 +0.27 +0.35 -0.02

C2 +0.20 +0.16 +0.08 +0.08
C3 +0.14 +0.12 +0.15 +0.13
C4 +0.30 +0.14 +0.19 0.00
 Reduce the following two person zero sum game to
2x2 order and obtain the optimal strategies for
each player and value of the game

B1 B2 B3 B4
A1 3 2 4 0
A2 3 4 2 4
A3 4 2 4 0
A4 0 4 0 8
Mixed Strategies
 Suppose that in a game of matching coins with two players,
one player wins Rs. 2 when there are 2 heads, and gets
nothing when there are 2 tails and looses Re 1 when there are
one head and one tail. Determine the best strategies for each
player and the value of the game.
 Player A and B play a game in which each has 3 coins a 5p,
10p and 20p. Each selects a coin without the knowledge of the
other’s choice. If the sum of the coins is an odd amount, then
A wins B’s coin. But if the sum is even, then B wins A’s coin.
Find the best strategy for each player and the value of the
game.
Graphical Method
(for 2n and n2 Games)
Graphical Method
(for 2n and n2 Games)
EXAMPLE 18

Solve the following 2x5 game using the

graphical method.

Player B
Player B1 B2 B3 B4 B5
A A1 2 -1 5 -2 6
A2 -2 4 -3 1 0
EXAMPLE 19

Obtain the optimal strategies for both persons

and the value of the game for zero-sum two-
person game whose pay off matrix is as
follows:Player B
Player B1 B2
A A1 1 -3
A2 3 5
A3 -1 6
A4 4 1
A5 2 2
A6 -5 0
EXAMPLE 20

Use the notion of dominance to simplify the

rectangular game with the following pay off,
and solve it graphically.
Player B
Play B1 B2 B3 B4
er A1 18 4 6 4
A
A2 6 2 13 7
A3 11 5 17 3
A4 7 6 12 2