Game Theory

Theory of games started in 20 th

century, developed by John Von
Neumann and Morgenstern.

In many practical problems, it is

required to take decision where there
are two or more opposite parties with
conflicting interests and
the action of one depends upon
the action which the opponent
takes.

A great variety of competitive

situations are commonly seen every
day life
Launching advertizing
campaigns for competing
products
in military battles, political
campaigns

Competitive games
Following properties
1- There are finite no of competitors .Here we
assume no of players to be two.
2- Each player has available to him a list of finite no
of possible courses of actions.
3 - A play is said to be played when each of the players
chooses a single course of action from the list.
Here it is assumed that the choices are made
simultaneously so that no player knows his
opponents choice until he has decided his own
course of action.
4 - Every play determines an outcome.

Two person Zero sum game

Each of two players (opponents) has a
finite no of alternatives or strategies.
Associated with each pair of
strategies is the payoff one player
receives from the other.
A game with only two players in which
the gains of one player are the losses
of another player is called two
person zero sum game

Pay off matrix

In a two person zero sum game the resulting gain can be
represented in the form of matrix called pay off matrix.
Suppose player A has m courses of action and B has n
courses of action.
Pay off can be represented by m by n matrix
Rows are of courses of action available for A
columns are of courses of action available for B
In As payoff matrix [aij ]represents the payment to A
when A chooses action i and B chooses action j

Bs pay off matrix will be negative

of As pay off matrix

As pay off matrix

B

1
finger
2
fingers

1 finger 2
finger -1
+1
-1

+1

Bs pay off matrix will be

negative of it

Strategy
The strategy of a player is the
predetermined rule by which
a player decides his course of
action from his own list of courses of
action during the game

 Solution of the game is based on

the principle of securing the best
of the worst for each player

Solution of a game
By solving a game we mean to find
the best strategies for both the players
the value of the game.

and

Value of the game

Is the maximum guaranteed gain to player A (A maximizing
player) if both the players use their best strategies.
It is generally denoted by

v and is unique.

Fair game : if the value of the game is zero .

Maximin and minimax criterion of

optimality
It states that if a player lists his worst
possible outcomes of all his potential
strategies then he will choose that
strategy which corresponds to the
best of these worst outcomes.
Solution of the game is based on the
principle of securing the best of the
worst for each player

Player B

P 9 3 1 8 0
0
l 6 5 44 6 7
44
a 2 4 3 3 8
2
y 5 6 2 2 1
1
e 9
6 4 4
8
Col max
r
8
MAXIMIN
= MINMAX = VLUE OF
A

Row
minim
a

THE GAME = 4

GAME IS NOT FAIR as the value of

game is not zero

Best strategy for

player A is second
action
while for player B
best action is third
one

Maxmin for A is given by max {min aij }

= apq
I

Minimax for B is given by min {max aij } = ars

j

In general a

pq

a rs

Maximin for A minimax for B

If v is the value of the game

Maxmin for A

v minimax for B

Saddle pint
if minimax = maximin = value of the game then game
is called a game with saddle point.
Def: A saddle point of a pay off matrix is that position in
the pay off matrix where the maximum of row mins
coincides with the minimum of column s maxima.
The cell entry at that saddle point is called the
value of the game.
In a game with saddle point the players use pure
strategies i.e they choose the same course of action
through out the game
A saddle point of a matrix is an element which is both the
largest element in its column and the smallest element
in its row.

 The saddle point solution guarantees

that neither company is tempted to
select a better strategy.

Method for detecting a saddle point

Find the minimum value in each row and write it in
row minima
Find the maximum value in each column and put it in
column maxima.
Select the largest element in row minima and enclose
it in circle and select the lowest element in column
max and encloses it in rectangle.
Find the element which is same in the circle and
rectangle and mark the position of such element in
matrix..
It is the saddle point which represents the value of
the game.

If saddle point exists it means optimal

strategy is pure.
Optimal pure strategies for first and
second players are the row and col where
saddle point is present.
The value of saddle point is the value of
the game

Determine the values of p,q that will

make (A2,B2) a saddle point

1 q 6
p 5 10

6 2 3

 Q <= 5
P>= 5

Determine the values of p,q that will

make (A2,B2) a saddle point

2 4 5
10 7 q

4 p 6

 Q >= 7
P<= 7

Meaning
If a saddle point exists then minimax
and maxmin pure strategies are
optimal strategies for players 1 and 2
resp.
Player one can expect to gain atleast
an amount v if he uses
optimal(maxmin) strategy on each
play and player 2 can expect to loose
no more than v if he uses his
minimax pure strategy on each play

If player 1 deviates from his

optimal maxmin strategy player 2
can possibly lose fewer than v
units on each play.
In a like manner if player 2
deviates his optimal minimax
strategy player 1 can possibly
gain more than v units on each
play of the game.

Saddle points does not exist

If
-

= minmax vlaue

>

maxmin value =

Then these strategies will not be optimal

For example

1 4
1
3 2
2 maxmin
3 4
minmax

here v

- = minimax = 3 > 2 = maxmin =

v -

 Thus each player has some latitude to try to

gain some of the difference between these two
values.
Player 1 wants to increase his expected gain
as much as possible upwards from v- =2 units
while player 2 wants to decrease his expected
loss as much as possible from v = 3 units.
Thus we want to determine what
proportion of time each row should be
played to maximize expected payoff for
player 1.similar reasoning holds for other
player. This leads to use of mixed
strategies

Pure / mixed strategies

A Pure strategy is a decision in advance of all plays,
always to choose a particular course of action
A mixed strategy is a decision in advance of all
plays, to choose a course of action for each play in
accordance with some particular probability
distribution.
Opponents are kept guessing as to which course of
action is to be selected by the other on any
particular occasion.
Pure strategy is a special case of mixed
strategy.

Consider the 2 x 2 game with payoff

matrix
1 4
1
3 2
2 maximin
3 4
minimax
So no saddle point
so no pure strategy will be optimal
Value of game will lie in between 2 and
3

1 4
3 2
Suppose player 1 uses mixed strategy with
prob (1/3 , 2/3) and player 2 uses with prob
(3/4 , 1/4)
Expected payoff (1/3)(3/4)(1 )+(1/3)(1/4)(4)
+(2/3)(3/4)(3) +(2/3)(1/4)(2)
= 29/12
It lies in between 2 and 3

Rules of dominance
Rule 1
if all the elements in a row (say i th)of
payoff matrix are less than or equal
to the corresponding elements of
other row(say j th) then player A will
never choose the i th strategy or in
other words i th strategy is dominated
by the j th strategy.
so one can delete i th row

Rule 2
If all the elements in a column(say r
th
) of payoff matrix are greater than
or equal to the corresponding
elements of other column (say s th)
then the player B will never choose
the
r th strategy or in other words the r th
strategy is dominated by the s th
strategy.
so I th col may be deleted

Rule 3
A pure strategy may be dominated if
it is inferior to an average (convex
combination)of two or more other
pure strategies.

-1

-2

-1

12

7
12

-2
-1
0

No saddle point exists,

For A pure strategy 1is dominated by
strategy 3. so row 1 can be
eliminated
also for player B pure strategy 1 is
dominated by strategy 2. so col 1

(i) By using the dominance properties

we always try to reduce the size of
payoff matrix to 2 x 2.

(ii) In case the payoff matrix reduces

to size 2 x n or m x 2 then graphical
method is used

Theorem(for Algebraic
Method)
For any zero sum two person game where
the optimum strategies are not pure and
for player A payoff matrix is A, the
optimal strategies are (x1,x2) and (y1,y2)
x1and
a 22
a 21 and are given by
for A
B resp

x2

a11 a12

and
y1
a 22 a12

y2
a11 a 21
and the value of the game to A is
a11a 22 a12 a 21
v
( a11 a 22) ( a12 a 21)

If (x1,x2) and(y1,y2) are the mixed

strategies(prob distributions) for
players A and B resp then
x1 +x2 = 1
y1 + y2 = 1
x1 0, x2 0, y1 0 , y2 0

Expected gain to A when B uses strategy 1

a11 x1 + a21x2
Expected gain to A when B uses strategy II
a12 x1 + a22x2
Similarly expected loss for B when A uses
strategy I
a11y1 +a12y2
Similarly expected loss for B when A uses
strategy II
a21 y1+ a22 y2

v is the value of the game then

since A expects to get at least v

a11 x1 + a21x2 v
a12 x1 + a22x2 v
Also B expects atmost v
a11y1 +a12y2 v
a21 y1+ a22 y2 v

If

For optimal strategies

a11 x1 + a21x2= v
a12 x1 + a22x2 =v
a11y1 +a12y2 = v
a21 y1+ a22 y2 = v
(a11 a12 ) x1 = (a22-a21) x2
(a11 - a21)y1
= (a22-a12)y2

x1
a 22 a 21

x2
a11 a12
similarly
y1
a 22 a12

y2
a11 a 21
Using the eq x1 +x2 =1

a 22 a 21
x1
(a11 a 22) (a12 a 21)
a11 a12
x2
(a11 a 22) (a12 a 21)

similarly

a 22 a12
y1
(a11 a 22) (a12 a 21)
a11 a 21
y2
(a11 a 22) (a12 a 21)

Value of the game

a11 a 22 a12 a 21
v
(a11 a 22) (a12 a 21)

Q Solve the game whose payoff

matrix is
-1

-2

-1

12

No saddle point exists,

For A pure strategy I is dominated by
strategy III.
also for player B pure strategy I is
dominated by strategy II.

II
III

5
0

II
III

-1
12

a 22 a 21
x1
(a11 a 22) (a12 a 21)
a11 a12
x2
(a11 a 22) (a12 a 21)
X1 = 2/3
X2 = 1/3

a 22 a12
y1
(a11 a 22) (a12 a 21)
a11 a 21
y2
(a11 a 22) (a12 a 21)
Y1 = 13/18
Y2 =5/18

a11 a 22 a12 a 21
v
(a11 a 22) (a12 a 21)
Value of the game is

10/3

Thus optimal strategy for A is

(0,2/3, 1/3)
And
For B (0, 13/18, 5/18)

(a)

7
4

10

(b)

(ii) Solution of 2 x n or m x 2 games

without saddle point(graphical method)

one of the players has only two

undominated pure strategies
available.
By using graphical method it is aimed
to reduce a game to the order of 2 x
2 by identifying and eliminating the
dominated strategies and then solve
it by analytical method.

 Every 2 X n games contains a 2 X 2

subgame such that the optimal minimax
strategies for the 2 X 2 subgame are also
optimal minimax strategies for the 2X n
game, with zero prob assigned to each
column not in 2 X2 subgame.
Graphically the two columns that form the
appropriate 2 X 2 subgame in this case are
those corresponding to the two equations
that intersect at the maximum value of v.

Consider the following 2 x n payoff matrix

(game without saddle point)
Player A B1
A1
A11
A2

A21

Player B
B2
Bn
A12
-

a1n

A22

a2n

Player A has two strategies A1 and A2 with

probabilities p1 and p2 resp such that
p1 + p2 =1,

prob
abilit
y
P1
p2

 For each of the pure strategies

available to player B, expected
payoff for player A would be as
Player Bs
Player As
follows:
pure
strategy

expected
payoff

B1

a11 p1 + a21
p2

B2
-

a12 p1 +a22
p2

Bn
a11 p1 + a21 p2 v
a12 p1 +a22 p2 v a1n p1
+a2np2
a1n p1 +a2np2 v

According to the maximum criterion for mixed

strategy games player

A should select the value of

probabilities p1,p2 to maximize his
minimum expected payoff.
This can be done by plotting straight lines
representing player As expected payoffs.

The highest point of the lower

boundary of these lines(lower
envelope) will give maximum expected
payoff and the optimum values of
probabilities p1 and p2. Now the two
strategies of player B corresponding to
those lines which pass through the

The m x 2 games are also treated in

the same way except that the upper
boundary of the straight lines
corresponding to Bs expected
payoff will give the maximum
expected payoff to player B and
the lowest point on this
boundary (upper envelope) will
then give the minimum expected
payoff and the optimum values of
prob q1 and q2.

Solve the game graphically with the

following payoff matrix
B1
A1

A2

-6

B2

B3

-7

B4
9
-2

When B chooses B1 expected payoff for A

shall be
8 p1 + (-6)(1-p1) or
14 p1 -6
Similarly expected payoff functions in
respect to B2,B3 and B4 can be derived as
6-p1; 4- 11p1 ; 11 p1 -2 resp.
We can represent these graphically
plotting each payoff as a function of p1

14 p1
-6 :B1
6-p1: B2
411p1:B3
11 p1
-2:B4

 Lines are marked B1,B2,B3 and B4 and

they represent the respective strategies.
For each value of p1 the height of the lines
at that point denotes the payoff of each of
Bs strategy against (p1,1-p1) for A.
A is concerned with his least payoff when
he plays a particular strategy, which is
represented by the lowest of the four lines
at that point and wishes to choose p1 in
order to maximize this minimum payoff.

Player B
P
L
A
A
Y
e
r

B1
A1

8 -7

A2

-6

B3

Using algebraic method opt strategy for A and B are

(2/5, 3/5) and (11/25, 0, 14/25,0)

 This is at K where the lower envelope

lowest of the lines at his point is the
highest. this point lies at the intersection of
the lines representing B1 and B3
strategies.
distance
KL = -0.4 represents the game value V
Alternatively the game can be written as a
2 by 2 game as follows with strategies A1
and A2 for A and B1 and B3 for B

Q: solve the game whose pay off

matrix is
I

Ii

Iii

iv

-3

II

-6

(a)

(b)

For the payoff matrix

3 5 4 2
5 6 2 4

2 1 4 0

3 3 5 2
Row 1 dominates row 3 since element by element
3>2 , 5>1 4=4 2>0
Therefore row 3 can be eliminated and the payoff matrix
reduces to

3 5 4 2
5 6 2 4

3 3 5 2

 3 5 4 2
5 6 2 4

3 3 5 2
With respect to columns we see that column 2 dominates
column 1, so col 2 can be eliminated therefore reduced matrix

3
5
3

4
2
5

2
4
2

Now col 1 dominates col 3 so col 1 can be eliminated to give

4
2

2
4
2

 4 2
2 4

5 2
2 4
5 2

Finally row 3 dominates row 1 so row

1 can be eliminated. Thus the
original game has been reduced to 2
Y3
y4
X 2 subgame
2 4
5 2

Giving final sol as

X2
x4

x2 = 3/5

x4 = 2/5

y3 = 2/5

y4 = 3/5

 Giving final sol as x2 = 3/5

2/5
y3 = 2/5 y4 = 3/5
Complete optimal solution is
X =2, 3/5 0 2/5]
And y = [0,0,2/5 ,3/5]
And value of the game = 16/5

x4 =