Module 3

Game Theory
Introduction
• In many practical problems, it is required to take decision in a
situation where there are two (or more) opposite parties with
conflicting interests and the action of one depends upon the action
which the opponent takes.
• The outcome of the situation is controlled by the decisions of all
the parties involved.
• Such a situation is termed as a competitive situation.
• Such problem occurs frequently in economics, military, social,
political, advertising and marketing, etc.
Introduction
• A game is a contest involving two or more competitors each of
whom wants to win.
• A theory of Games provides a series of mathematical models that
may be useful in explaining interactive decision-making concepts,
where two or more competitors are involved under conditions of
conflict and competition.
Characteristics of Game Theory
• There can be various types of games that can be classified on the basis of the
following characteristics:
i. Chance of strategy: If in a game, activities are determined by skill, it is said to be
game of strategy; if they are determined by chance, it is a game of chance. In general,
a game may involve game of strategy as well as a game of chance. In this chapter,
simplest models of games of strategy will be considered.
ii. Number of persons: A game is called an n-person game if the number of persons
playing is n. The person means an individual or a group aiming at a particular
objective.
iii. Number of activities: These may be finite or infinite.
iv. Number of alternatives (choices) available to each person in a particular activity
may also be finite or infinite. A finite game has a finite number of activities each
involving a finite number of alternatives, otherwise the game is said to be infinite.
Characteristics of Game Theory
• There can be various types of games that can be classified on
the basis of the following characteristics:
v. Information to the players about the past activities of other
players is completely available, partly available, or not available
at all.
vi. Payoff: A quantitative measure of satisfaction a person gets at
the end of each play is called a payoff. It is a real-valued function
of variables in the game.
Concepts of Game Theory
• Competitive game: A competitive situation is called a competitive
game if it has the following four properties:
• There are finite number (n) of competitors (called players such that n≥2. In case
n=2, it is called a two-person game and In case n>2, it is referred to as an n-
person game.
• Each player has a list of infinite of possible activities. (The list may be the same
for each player)
• A play is said to occur when each player choose one of his activities. The choices
are assumed to be made simultaneously, i.e. no players know the choices of the
other until he has decided on his own.
• Every combination of activities determine as outcome (which may be points
money or anything else whatsoever) which results in a given of payments (+ve,
-ve or zero) to each player, provided each player is playing uncompromisingly to
get as much as possible. Negative gain implies the loss of same amount.
Concepts of Game Theory
• Zero –sum and non-zero-sum Games: Competitive games are
classified according to the number of players involved, i.e. as a two
person game, three person game, etc. another important
distinction is between zero-sum games and non-zero-sum games.
If the players make payment only to each other, i.e. the loss of one
is the gain of others, and nothing comes from outside, the
competitive game is said to be zero-sum.
• A game which is not zero-sum is called a non-zero-sum game.
Most of the competitive games are zero-sum games.
Concepts of Game Theory
• Strategy: A strategy of a player has been loosely defined as a rule for
decision –making in advance of all the plays by which he decides the
activities he should adopt. In other words, a strategy for a given player is
a set of rules (Programmer) that specifies which of the available course
of action he should make at each play. This strategy may be of two kinds:
• Pure strategy: If a player knows exactly what the other player is going to do, a
deterministic situation is obtained and objective function is to maximize the gain.
Therefore, the pure strategy is a decision rule always to select a particular course
of action.
• Mixed Strategy: If a player is guessing as to which activity is to be selected by
the other on any particular occasion, a probabilistic situation is obtained and
objective function is to maximize the expected gain.
• Thus, the mixed strategy is a selection among pure strategy with fixed
probabilities.
Concepts of Game Theory
• Two-Person, Zero-Sum (or Rectangular) Games:
• A game with only two player (say, player A and Player B) 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.
• Two-person, zero-sum game, are also called rectangular games as these
are usually represented by a payoff matrix in rectangular form.
Concepts of Game Theory
• Payoff Matrix: Suppose the player A has m activities and the
player B has n activities. Then a payoff matrix can be formed by
adopting the following rules:
• Row designations for each matrix are activities available to player A.
• Column designation for each matrix are activities to player B
• Cell entry ‘Vij’ is the payment to player A in A’s payoff matrix when A
chooses the activity i and B chooses the activities j.
• With a ‘zero-sum, two-person game’, the cell entry in the player B’s payoff
matrix will be negative of the corresponding cell entry ‘Vij’ in the player
A’s payoff matrix so that sum of payoff matrices for player A and Player B
is ultimately zero.
 Player B

1 2 3 4

Player A
1 20 30 40 56
2 23 34 -60 45
3 45 47 56 -39
4 34 56 78 98
Concepts of Game Theory
• Value of the game this is the expected payoff at the end of the game, when
each player uses his optimal strategies, i.e. the amount of payoff, V, at an
equilibrium point. A game may have more than one saddle points. A game
with no saddle point is solved by choosing strategies with fixed probabilities.
• [Value of the game is the expected gain or loss in a game when a game is played
a large number of times]
• Remarks:
• The value of the game, in general, satisfies the equation: maximum values ≤V≤
minimax value.
• A game is said to be a fair game if the lower (maximum) and upper (Minimax) values
of the game are equal and both equals zero.
• A game is said to be strictly determined if the lower (maximum) and upper
(minimum) values of the game are equal and both equal the value of the game.
Concepts of Game Theory
• Maximin Principle
• Maximin principle for player A: The minimum value in each row
represents the least gain (payoff) to him, if he chooses his
particular strategy. These are written in the matrix by row minima.
He will then select the strategy that gives the largest gain among
the row minimum values. This choice of player A is called the
Maximin principle and the corresponding gain is called the
Maximin value of the game.
Concepts of Game Theory
• Minimax Principle
• Minimax principle For player B, who is assumed to be the looser,
the maximum value in each column represents the maximum loss
to him, if he chooses his particular strategy. These are written in
the payoff matrix by column maxima. He will then select the
strategy that gives the minimum loss among the column maximum
values. This choice of player B is called the Minimax principle, and
the corresponding loss is the Minimax value of the game.
Concepts of Game Theory
• Saddle Point
• In a two-person zero-sum game, if the maximin and the minimax are
equal, the game has saddle point.
• Saddle point is the position where the maximin (maximum of the
row minimums) and minimax (minimum of the column maximums)
coincide.
• If the maximin occurs in the rth row and if the minimax occurs in the
sth column, the position (r, s) is the saddle point.
• The value of a game is the expected gain of player A, when both the
players adopt optimal strategy.
Concepts of Game Theory
• Saddle Point
• Note 1: If a game has saddle point, the player’s strategy is pure strategy.
• Note 2: If a game does not have saddle point, the solution offers a mixed
strategy.
• Note 3: A game is said to be fair if its value is zero.
Flow
Chart of
Game
Theory
 Player B

1 2 3 Row
Minima

1 25 20 35 20
2 50 45 55 45 Maxi min

Player A 3 58 40 42 40
Column
Maxima 58 45 55

Min max
If Maximin = minmax,
• There exists a saddle point
• Value of the game =45
The game has saddle point, the player’s strategy is pure strategy.
Pure strategy means he adopts only one strategy
Optimum probabilities
A[P1,P2,P3 ] = A [0,1,0]
B[q1,q2,q3 ] = B[0,1,0]
Game Theory – Problem 1
• Find the saddle point.
  B’s Strategy
 
b1 b2 b3

a1 12 -8 -2

A’s Strategy a2 6 7 3

a3 -10 -6 2
Game Theory – Solution 1

B’s Strategy
Row
b1 b2 b3 Minima

a1 12 -8 -2
A’s Strategy a2 6 7 3
a3 -10 -6 2
Game Theory – Solution 1

B’s Strategy
Row
b1 b2 b3 Minima

a1 12 -8 -2 -8
A’s Strategy a2 6 7 3 3
a3 -10 -6 2 -10
Game Theory – Solution 1

B’s Strategy
Row
b1 b2 b3 Minima

a1 12 -8 -2 -8
A’s Strategy a2 6 7 3 3
a3 -10 -6 2 -10
Column
Maxima
Game Theory – Solution 1

B’s Strategy
Row
b1 b2 b3 Minima

a1 12 -8 -2 -2
A’s Strategy a2 6 7 3 3
a3 -10 -6 2 -10
Column
Maxima 12 7 3
Game Theory – Solution 1

B’s Strategy
Row
b1 b2 b3 Minima

a1 12 -8 -2 -8
A’s Strategy a2 6 7 3 3
a3 -10 -6 2 -10
Column
Maxima 12 7 3

Saddle Point = 3
Game Theory – Problem 2
• Two leading firms, Nirmala Textiles Ltd. And Swati Rayons Ltd., for years have been selling
shirting, which is but a small part of both firms’ total sales. The Marketing Director of Nirmala
Textiles raised the question, ‘What should the firm’s strategies be in terms of advertising for the
product in question?” The system group of Nirmala Textiles developed the following data for
varying degrees of advertising:
a. No advertising, medium advertising and heavy advertising for both firms will result in equal market share.
b. Nirmala Textiles with no advertising: 40 per cent of the market with medium advertising by Swati Rayons
and 28 percent of the market with heavy advertising by Swati Rayons.
c. Nirmala Textiles using medium advertising: 70 per cent of the market with no advertising by Swati Rayons
and 45 per cent of the market with heavy advertising by Swati Rayons.
d. Nirmala Textiles using heavy advertising: 75 per cent of the market with no advertising by Swati Rayons
and 52.5 per cent of the market with medium advertising by Swati Rayons. Based upon the above
information, answer the marketing director’s question.
• The pay-off matrix from the viewpoint of Nirmala Textiles Ltd., showing its market share under
several combinations of the strategies, is given below. Also, row minima and column maxima
have been obtained to see if saddle point exists.
Game Theory – Problem 2
Strategy of Swati Rayon’s Limited
b1 b2 b3

Strategy of a1 50 40 28
Nirmala
Textiles Ltd. a2 70 50 45
a3 75 52.5 50
 Game Theory – Solution 2
Strategy of Swati Rayon’s Limited
No Advt. Med. Advt. Heavy
Advt.
b1 b2 B3 Row Minima
Strategy No Advt. a1 50 40 28 28
of
Nirmala Med. Advt. a2 70 50 45 45
Textiles a3 75 52.5 50
Ltd.
Heavy Advt. 50

Column Maxima 75 52.5 50

Game with mixed strategies
Player B
Row
1 2 minima

Player A 1 9 7 7 Maxi min

2 5 11 5
Column
maxima 9 11
Min max
If Maximin not equal to minmax,
• Then there is no saddle point.
• Then the players adopt mixed strategy
 1 2 oddments probabilities
1 9 7 6 P1=6/8
=3/4
2 5 11 2 P2= 2/8
= 1/4
oddments 4 4
probabilities q1=4/8 q2=4/8
=1/2 =1/2
Player A
Value of the game= {(9*6)+(5*2)}/6+2
=8
Player B
Value of the game= {(9*4)+(7*4)}/4+4
=8

Hence the strategies of Player A(3/4, ¼)

Hence the strategies of Player B(1/2, 1/2)

Value of the game = 8

Game Theory – Problem 2
• Conclusion:
• The optimal strategy for each one is to engage in heavy advertising and it
will result in an even distribution of the market between the firms.
• Nirmala Textiles Ltd’s marketing director should, therefore, resort to heavy
advertising.
Game Theory – Problem 5
• Mixed Strategy
  B’s Strategy
 
b1 b2

a1 8 -7
A’s Strategy
a2 -6 4
Game Theory – Problem 3
• Let the given payoff matrix be:

  B’s Strategy
 

a11 a12
A’s Strategy
a21 a22
 Game Theory – Problem 3
• Let X or P be the proportionate strategy for player A
• Let Y or q be the proportionate strategy for player B
• Let V be the Value of the Game

X= a22 – a21 Y= a22 – a12 V = a11 a22 – a12 a21

(a11 + a22) – (a12 + a21) (a11 + a22) – (a12 + a21) (a11 + a22) – (a12 + a21)

X= 4 – (-6) =2/5 Y= 4 – (-7) = 11/25 V= 8*4 – (-7)*(-6) = -2/5

(8 + 4) – (-7 -6) (8 + 4) – (-7 -6) (8 + 4) – (-7 -6)
 Game Theory – Problem 3
• Thus we conclude that A and B should use mixed strategies as given
here and the value of the game is -2/5.
• Thus there will be a net loss of -2/5 per play.

  Strategy Probability
a1 2/5
For A a2 3/5
b1 11/25
For B b2 14/25
 Game Theory – Problem 3
• Thus optimal strategy for A is (2/5, 3/5) and for B is (11/25, 14/25)
and the value of the game is -2/5
• Expected pay-off for A using mixed strategy:
(2/5 x 8) + (3/5 x -6) = -2/5
(2/5 x -7) + (3/5 x 4) = -2/5
• Expected pay-off for B using mixed strategy:
(11/25 x 8) + (14/25 x -7) = -2/5
(11/25 x -6) + (14/25 x 4) = -2/5
Game Theory – Problem 4
• Mixed Strategy
  B’s Strategy
 
b1 b2

a1 2 5
A’s Strategy
a2 4 1
Game Theory – Problem 5
• Mixed Strategy
  B’s Strategy
 
b1 b2

a1 -5 -2
A’s Strategy
a2 -7 -4
Game Theory – Problem 6
• Mixed Strategy
  B’s Strategy
 
b1 b2

a1 1 1
A’s Strategy
a2 4 -3
Game Theory – Dominance Property
• In some games, it is possible to reduce the size of the payoff
matrix by eliminating rows/columns which are dominated by
other respective rows/columns.
• The principle of dominance states that if one strategy of a player
dominates over the other strategy in all conditions then the later
strategy can be ignored.
• The concept of dominance is especially useful for the evaluation
of two-person zero-sum games where a saddle point does not
exist.
Game Theory – Dominance Property
Rule:
• Dominance property for rows: X ≤ Y
• If all the payoffs in a strategy of Player A (rows) is less than all other
payoffs of another strategy of Player A, then that row (which has lesser
payoffs) can be ignored.
• Dominance property for Columns: X ≥ Y
• If all the payoffs in a strategy of Player B (columns) is greater than all
other payoffs of another strategy of Player B, then that column (which
has greater payoffs) can be ignored.
Game Theory – Dominance Property
• This has been developed based on the concept that “it is always
considered that Player A is the gainer and Player B is the loser”.
• In some cases, when the reduction of row/column is not
possible based on the dominance rule, the dominance rule can
be applied by taking the average of two rows/columns to
compare against a certain row/column in order to reduce the
matrix.
Dominance Property – Problem 1
• Solve the following game using the dominance property (Pure Strategy).

B’s Strategy
1 2 3 4
1 20 15 12 35
A’s 2 25 14 8 10
Strategy
3 -5 4 11 0
Dominance Property – Solution 1
• Solution – using maximin and minimax principle

1 2 3 4 Row Minima
1 20 15 12 35 12
2 25 14 8 10 8
3 -5 4 11 0 -5
Column 25 15 12 35
Maxima

Maximin = Minimax (12 = 12). Hence Saddle Point Exists.

Value of the game = 12
Dominance Property – Solution 1
• Solution – using dominance rule
• Step 1: Row Reduction
• Take the row total

1 2 3 4 Row Total
1 20 15 12 35 82
2 25 14 8 10 57
3 -5 4 11 0 10
Dominance Property – Solution 1
• Solution – using dominance rule
• Step 1: Row Reduction
• Take the row total
• Select the row with the least total

1 2 3 4 Row Total
1 20 15 12 35 82
2 25 14 8 10 57
3 -5 4 11 0 10
Dominance Property – Solution 1
• Solution – using dominance rule
• Step 1: Row Reduction
• Take the row total
• Select the row with the least total
• Check if all the payoffs are less than the respective payoffs in any other row(s),
starting from the first row.

1 2 3 4 Row Total
1 20 15 12 35 82
2 25 14 8 10 57
3 -5 4 11 0 10
Dominance Property – Solution 1
• Solution – using dominance rule
• Step 1: Row Reduction
• Take the row total
• Select the row with the least total
• Check if all the payoffs are less than the respective payoffs in any other row(s), starting from
the first row.
• Since all the payoffs are less than the payoffs of the first row, strategy 3 can be ignored/deleted.

1 2 3 4 Row Total
1 20 15 12 35 82
2 25 14 8 10 57
Dominance Property – Solution 1
• Solution – using dominance rule
• Step 1: Row Reduction
• Take the row total
• Select the row with the least total
• Check if all the payoffs are less than the respective payoffs in any other row(s), starting from the
first row.
• Since all the payoffs are less than the payoffs of the first row, strategy 3 can be ignored/deleted.
• Repeat the steps to check for further reduction.
• In this case, this is the maximum row reduction. Hence continue with the column reduction

1 2 3 4 Row Total
1 20 15 12 35 82
2 25 14 8 10 57
Dominance Property – Solution 1
• Solution – using dominance rule
• Step 2: Column Reduction
• Steps remain the same, except that the payoffs of the selected column
must be greater than those of other column(s) in order to be ignored.

1 2 3 4
1 20 15 12 35
2 25 14 8 10
Column
Total 45 29 20 45
Dominance Property – Solution 1
• Solution – using dominance rule
• Step 2: Column Reduction
• Steps remain the same, except that the payoffs of the selected column must be
greater than those of other column(s) in order to be ignored.
• In case the total of two rows/columns are equal, then consider the one which comes
first in the sequence.

1 2 3 4
1 20 15 12 35
2 25 14 8 10
Column
Total 45 29 20 45
Dominance Property – Solution 1
• Solution – using dominance rule
• Step 2: Column Reduction
• Steps remain the same, except that the payoffs of the selected column
must be greater than those of other column(s) in order to be ignored.

2 3 4
1 15 12 35
2 14 8 10
Column
Total 29 20 45
Dominance Property – Solution 1
• Solution – using dominance rule
• Step 2: Column Reduction
• Steps remain the same, except that the payoffs of the selected column
must be greater than those of other column(s) in order to be ignored.

2 3
1 15 12
2 14 8
Column
Total 29 20
Dominance Property – Solution 1
• Solution – using dominance rule
• Step 2: Column Reduction
• Steps remain the same, except that the payoffs of the selected column
must be greater than those of other column(s) in order to be ignored.

2 3
1 15 12
2 14 8
Column
Total 29 20
Dominance Property – Solution 1
• Solution – using dominance rule
• Step 3: Row Reduction
• Since there is one column and two rows, 3
row reduction can be adopted.
1 12
• Since the second row has the least value, it
can be ignored 2 8
• We are left with 12. This is 1st strategy for A
and the 3rd for B.
• Probability of A’s strategy = {1, 0, 0}
• Probability of B’s strategy = {0, 0, 1, 0}
Dominance Property – Problem 2
• Solve the following game using the dominance property (Pure Strategy).

B’s Strategy
1 2 3 4 5
1 4 6 5 10 6
A’s 2 7 8 5 9 10
Strategy 3 8 9 11 10 9
4 6 4 10 6 4
Dominance Property – Problem 3
• Solve the following game using the dominance property (Mixed Strategy).

B’s Strategy
1 2 3 4
1 5 -3 3 4
A’s Strategy
2 -4 5 4 5
3 4 -4 -3 3
Dominance Property – Solution 3

1 2 3 4 Row Minima
1 5 -3 3 4 -3
2 -4 5 4 5 -4
3 4 -4 -3 3 -4
Dominance Property – Solution 3

1 2 3 4 Row Minima
1 5 -3 3 4 -3
2 -4 5 4 5 -4
3 4 -4 -3 3 -4
Column Maxima 5 5 4 5

Maximin ≠ Minimax. Hence there is no saddle point.

Continue with applying dominance property
Dominance Property – Solution 3

1 2 3 4 Row Total
1 5 -3 3 4 9
2 -4 5 4 5 10
3 4 -4 -3 3 0
Dominance Property – Solution 3

1 2 3 4 Row Total
1 5 -3 3 4 9
2 -4 5 4 5 10
3 4 -4 -3 3 0
Dominance Property – Solution 3

1 2 3 4
1 5 -3 3 4
2 -4 5 4 5
Column 1 2 7 9
Total
Dominance Property – Solution 3

1 2 3 4
1 5 -3 3 4
2 -4 5 4 5
Column 1 2 7 9
Total
Dominance Property – Solution 3

1 2 3
1 5 -3 3
2 -4 5 4
Column 1 2 7
Total
Dominance Property – Solution 3

1 2 3
1 5 -3 3
2 -4 5 4
Column 1 2 7
Total
Dominance Property – Solution 3

1 2 3
1 5 -3 3
2 -4 5 4
Column 1 2 7
Total

No further reduction possible. Hence take the average of any two rows and check if further
reduction is possible.
In this case, the average of first two columns are taken and compared with the third column.
Dominance Property – Solution 3

1 2 3
1 5 -3 3
2 -4 5 4
Column 1 2 7
Total

 Averages of first two columns:

and
Dominance Property – Solution 3

Avg. of 1 & 2 3
1
1 1
1 3
3
2 4
2
Column 4
1 7
Total
Column
Total 1 7
Dominance Property – Solution 3

Avg. of 1 & 2
1
1 1
1
2
2
Column 1
Total
Column
Total 1
Dominance Property – Solution 3

Proceed to find the

probability of each
1 2 strategy and the value
1 5 -3 of the game.
2 -4 5 Two methods can be
adopted – Using the
formula (a11 to a22) or
by using oddments.
 Dominance Property – Solution 3

To calculate oddments:
The difference of first row
1 2 Oddments will be the oddment of the
1 5 -3 =5 – (-4) = 9 second row and vice versa.
The difference of first
2 -4 5 = 5 – (-3) = 8
column will be the
Oddments = 5 – (-3) = 8 = 5- (-4) = 9 oddment of the second
column and vice versa.
Dominance Property – Solution 3

1 2 Oddments
1 5 -3 =5 – (-4) = 9
2 -4 5 = 5 – (-3) = 8
Oddments = 5 – (-3) = 8 = 5- (-4) = 9

To calculate probabilities of each strategy:

Probability of 1st strategy = Oddment of 1st strategy ÷ Sum of all the row/column oddments
Probability of 2nd strategy = Oddment of 2nd strategy ÷ Sum of all the row/column oddments
Dominance Property – Solution 3

1 2 Oddments Probability
1 5 -3 =5 – (-4) = 9 9 ÷ (9+8) = 9/17
2 -4 5 = 5 – (-3) = 8 8 ÷ (9+8) = 8/17
Oddments = 5 – (-3) = 8 = 5- (-4) = 9

Probability 8 ÷ (9+8) = 9 ÷ (9+8) =

8/17 9/17

 Probability for Player A’s strategies: {

Probability for Player B’s strategies: {

Dominance Property – Solution 3

1 2 Oddments
1 5 -3 =5 – (-4) = 9
2 -4 5 = 5 – (-3) = 8
Oddments = 5 – (-3) = 8 = 5- (-4) = 9

 Value of the game:

Multiply any row or column with its respective oddment and divide by
the sum of oddments.

V= = =
Dominance Property – Problem 4
• In a small town, there are only two stores, ABC and XYZ, that handle
sundry goods. The total number of customers is equally divided
between the two, because the price and the quality of goods sold are
equal. Both stores have good reputation in the community, and they
render equally good customer service. Assume that a gain of
customers by ABC is a loss to XYZ and vice versa. Both stores plan to
run annual pre-Diwali sales during the first week of November. Sales
are advertised through a local newspaper, and through radio and
television. With the aid of an advertising firm store, ABC constructed
the game matrix given below. (Figures in the matrix represent a gain
or loss of customers). Solve this using dominance property.
Dominance Property – Problem 4

  Strategy of XYZ

Strategy of ABC Newspaper Radio Television

Newspaper 30 40 -80
Radio 0 15 -20
Television 90 20 50
Game Theory – Quick Summary So Far
• Game Theory aids in decision making
• Three decision making environments – Deterministic, Probabilistic and
Uncertain
• Pure Strategy (Maximin = Minimax, Saddle Point Exists, Value = Saddle Point)
• Mixed Strategy (Maximin ≠ Minimax, Saddle Point Exists, Value ≠ Saddle
Point)
• Two person zero sum game (positive values in the payoff matrix is gain to
player A and loss to player B; negative values in the payoff matrix is loss to
player A and gain to player B)
• Maximin – Maximize the minimum guaranteed gain
• Minimax – Minimize the maximum losses
Game Theory – Quick Summary So Far
• Dominance Property – X ≤ Y for rows; X ≥ Y for columns
• Oddments – difference between the values in row will go to the other
row and vice versa. Applicable to columns as well.
• Probability = oddment value ÷ sum of oddment values (for both the
players)
• Value of the game = Sum of product of a particular row value with
that of the column oddment values ÷ sum of the column oddment
values (applicable for any row or column).
Game Theory – Graphical Method
Two types of problems in this:
• 2 X n Game: 2 rows and n columns
• m X 2 Game: m rows and 2 columns
Graphical Method – Problem 1
• Solve the following game using graphical approach

B’s Strategy
1 2 3 4 5
As 1 -4 2 5 -6 6
Strategy 2 3 -9 7 4 8
Graphical Method – Solution 1
• Reduce the size of the payoff matrix using dominance property, if it exists
(column reduction)

B’s Strategy
1 2 3 4 5
As 1 -4 2 5 -6 6
Strategy 2 3 -9 7 4 8
TOTAL -1 -7 12 -2 14
Graphical Method – Solution 1
• Reduce the size of the payoff matrix using dominance property, if it exists
(column reduction)

B’s Strategy
1 2 3 4 5
As 1 -4 2 5 -6 6
Strategy 2 3 -9 7 4 8
TOTAL -1 -7 12 -2 14
Graphical Method – Solution 1
• Reduce the size of the payoff matrix using dominance property, if it exists
(column reduction)

B’s Strategy
1 2 3 4
As 1 -4 2 5 -6
Strategy 2 3 -9 7 4
TOTAL -1 -7 12 -2
Graphical Method – Solution 1
• Final column reduction

B’s Strategy
1 2 4
As 1 -4 2 -6
Strategy 2 3 -9 4
TOTAL -1 -7 -2
Graphical Method – Solution 1
• Probability of A’s Strategies - Let ‘x’ be the probability of selection of
alternative 1 by player A and (1-x) be the probability of selecting the
alternative 2

B’s Strategy
1 2 4
As 1 -4 2 -6 x
Strategy 2 3 -9 4 1-x
TOTAL -1 -7 -2
 Graphical Method – Solution 1
• Find expected gain function for Player A with respect to each of the alternatives of
Player B

EXPECTED PAY OFF FUNCTION AND GAIN FOR PLAYER A

A’s Expected Gain
B’s Alternatives A’s Expected Payoff Function
X=0 X=1

1 -4(x) + 3(1-x) = -7x + 3 3 -4

2 2(x) + (-9)(1-x) = -11x – 9 -9 2

4 (-6)(x) + 4(1-x) = -10x + 4 4 -6

 Graphical Method – Solution 1
• Plot the gain function on a graph by assuming suitable scale (keep x on X-
Axis and gain (y) on Y-Axis).
 Gain when X = 0 Gain when X = 1

4 4
B4
3 3
2 2
B1
1 1
0.1 0.2 0.3 0.4 0.5 0.6 0.7 0.8 0.9
X=0 X=1
-1 -1
-2 -2
-3 -3
-4 -4
-5 -5
-6 -6
-7 B2 -7
-8 -8

-9 -9
 Gain when X = 0 Gain when X = 1

4 4
B4
3 3
2 B1 2 Find the highest
1 1 intersection point
0.1 0.2 0.3 0.4 0.5 0.6 0.7 0.8 0.9
X=0 X=1 in the lower
-1 -1 boundary of the
-2 -2 graph – Maximin
-3 -3 Point
-4 -4
-5 -5
-6 -6
-7 B2 -7
-8 -8

-9 -9
 Find the highest
intersection point
in the lower
boundary of the
graph – Maximin
2 Point

3
The highest intersection point
in the lower boundary of the
1 graph – Maximin Point is at 2
If the number of lines passing through the Maximin point is only two, form a
2X2 matrix.
Else, identify any two lines with opposite slopes passing through that point
and then form 2X2 matrix.

In this case, there are only two lines passing through the Maximin point – B2
and B4.
Hence, create 2X2 matrix involving two strategies of player A and 2 strategies
of Player B (2nd and 4th)

2 4
1 2 -6
2 -9 4
 2 4 Oddments Probability
1 2 -6 13 13/21
2 -9 4 8 8/21
Oddments 10 11

Probability 10/21 11/21

 Probability for Player A’s strategies: {

 V = = =
Probability for Player B’s strategies: {0,
Graphical Method – Problem 2
• Solve the following game using graphical approach

B’s Strategy
1 2
1 6 -7
As 2 1 3
Strategy 3 3 1
4 5 -1
 Graphical Method – Solution 2
• Reduce the size of the payoff matrix using dominance property, if it exists (row
reduction)

B’s Strategy
1 2
1 6 -7
As 2 1 3
Strategy 3 3 1
4 5 -1
Graphical Method – Solution 2
• Probability of B’s Strategies - Let ‘y’ be the probability of selection of
alternative 1 by player B and (1-y) be the probability of selecting the
alternative 2
B’s Strategy
1 2
1 6 -7
As 2 1 3
Strategy 3 3 1
4 5 -1

y 1-y
 Graphical Method – Solution 2
• Find expected gain function for Player B with respect to each of the alternatives of
Player A
EXPECTED PAY OFF FUNCTION AND GAIN FOR PLAYER B
B’s Expected Gain
A’s Alternatives B’s Expected Payoff Function
Y=0 Y=1

1 6(y) + (-7)(1-y) = 13y - 7 -7 6

2 1(y) + 3(1-y) = -2y + 3 3 1

3 3(y) + 1(1-y) = 2y + 1 1 3

4 5(y) + (-1)(1-y) = 6y - 1 -1 5
 Gain when Y = 0 Gain when Y = 1

6 6
5 5
4 4
A2
3 3
2 A3 2
1 1
0.1 0.2 0.3 0.4 0.5 0.6 0.7 0.8 0.9
Y=0 Y=1
-1 -1
A4
-2 -2
-3 -3
-4 -4
-5 -5
-6 -6
A1
-7 -7
 Gain when Y = 0 Gain when Y = 1

6 6
5 5
4 4 Find the lowest
A2
3 3
2 A3 2 intersection point in the
1 1
0.1 0.2 0.3 0.4 0.5 0.6 0.7 0.8 0.9 higher boundary of the
Y=0 Y=1
graph – Minimax Point.
-1 -1
A4
-2 -2
-3 -3
-4 -4
-5 -5
-6 -6
A1
-7 -7
 4

1 Find the lowest

2
A2 intersection point in the
higher boundary of the
graph – Minimax Point.

The lowest intersection point in

the higher boundary of the
graph – Minimax Point is at 2
Since the number of lines passing through the Minimax point is more than
two, identify any two lines with opposite slopes passing through that point
and then form a 2X2 matrix.
Here, A2 and A4 are the two lines with opposite slopes.
Hence, create 2X2 matrix involving two strategies of player A (2nd and 4th)and
2 strategies of Player B.

1 2
2 1 3
4 5 -1
 1 2 Oddments Probability
2 1 3 6 ¾
4 5 -1 2 ¼
Oddments 4 4

Probability ½ ½

 Probability for Player A’s strategies: {0,

 V = = =
Probability for Player B’s strategies: {
Graphical Method – Problem 3
• Solve the following game using graphical approach

B’s Strategy
1 2 3 4
As 1 2 2 3 -2
Strategy 2 4 3 2 6
Graphical Method – Solution 3
• After Column Reduction

B’s Strategy
2 3 4
As 1 2 3 -2
Strategy 2 3 2 6
 Graphical Method – Solution 3
• Find expected gain function for Player A with respect to each of the alternatives of
Player B

EXPECTED PAY OFF FUNCTION AND GAIN FOR PLAYER A

A’s Expected Gain
B’s Alternatives A’s Expected Payoff Function
X=0 X=1

2 2(x) + 3(1-x) = -x + 3 3 2

3 3(x) + 2(1-x) = x + 2 2 3

4 (-2)(x) + 6(1-x) = -8x + 6 6 -2

 Gain when X = 0 Gain when X = 1

6 6
B4
5 5
4 4
B2 B3
3 3
2 2
1 1
0.1 0.2 0.3 0.4 0.5 0.6 0.7 0.8 0.9 The highest intersection point
X=0 X=1 in the lower boundary of the
-1 -1 graph – Maximin Point is at the
-2 -2 intersection of B3 and B4
-3 -3
-4 -4
-5 -5
-6 -6
-7 -7
-8 -8

-9 -9
 3 4 Oddments Probability
1 3 -2 4 4/9
2 2 6 5 5/9
Oddments 8 1

Probability 8/9 1/9

 Probability for Player A’s strategies: {

 V = = =
Probability for Player B’s strategies: {0, 0,
Graphical Method – Problem 4
• Solve the following game using graphical approach

B’s Strategy
1 2
1 1 -3
2 3 5
As 3 -1 6
Strategy 4 4 1
5 2 2
6 -5 0
Graphical Method – Solution 4
• After Row Reduction

B’s Strategy
1 2
As 2 3 5
Strategy 3 -1 6
4 4 1
 Graphical Method – Solution 4
• Find expected gain function for Player B with respect to each of the alternatives of
Player A
EXPECTED PAY OFF FUNCTION AND GAIN FOR PLAYER B
B’s Expected Gain
A’s Alternatives B’s Expected Payoff Function
Y=0 Y=1

2 3(y) + 5(1-y) = -2y + 5 5 3

3 (-1)(y) + 6(1-y) = -7y + 6 6 -1

4 4(y) + 1(1-y) = 3y + 1 1 4
 Gain when Y = 0 Gain when Y = 1

6 6
5 A2 5
4 4 The lowest intersection
3 A3 3
2 A4 2 point in the higher
1 1
0.1 0.2 0.3 0.4 0.5 0.6 0.7 0.8 0.9 boundary of the graph –
Y=0 Y=1
Minimax Point – is at the
-1 -1
-2 -2 intersection of A2 and A4.
-3 -3
-4 -4
-5 -5
-6 -6
-7 -7
 1 2 Oddments Probability
2 3 5 3 3/5
4 4 1 2 2/5
Oddments 4 1

Probability 4/5 1/5

 Probability for Player A’s strategies: {0,

 V = = =
Probability for Player B’s strategies: {
Q&A
Thank You