GAME THEORY

BY: AMAR KUMAR

USN:1PI07ME019
 Outline

• What is Game Theory?

• History of Game Theory
• Key Elements of a game
• Types of games
• Pure Strategies & Mixed Strategies
• 2 players Zero-Sum games
Nash equilibrium
Coordination games
Applications of game theory
 What is game theory?

 Game theory is a branch of applied mathematics that is used in

the social sciences, most notably in economics, as well as in
biology (most notably evolutionary biology and ecology),
engineering, political science, international relations, computer
science, and philosophy.
• In strategic games, agents choose strategies that will maximize
their return, given the strategies the other agents choose.
• A design tool.
• The mathematics of human interactions.
• A promise for the unification of social sciences.
 History of game theory

• von Neumann wrote a key paper in 1928

• 1944: “Theory of Games and Economic Behavior” by von
Neumann and Morgenstern
• 1950: Nash invents concept of Nash equilibrium
• Game theory booms after this…
• 1994: Harsanyi, Nash, and Selten win Nobel Prize in economics
for game theory work
 Key elements of a game

• Players: Who is interacting?

• Strategies: What are their options?
• Payoffs: What are their incentives?
• Information: What do they know?
• Rationality: How do they think?
 Types of game

• Cooperative or non-cooperative

• Zero sum and non-zero sum

• Simultaneous and sequential

• Perfect information and imperfect information

• Finite & Infinite Strategies

 Pure Strategies

 The upper value of the game is equal to the minimum of the

maximum values in the columns.

 The lower value of the game is equal to the maximum of the

minimum values in the rows.
 An Example

A Y1 Y2 min

B
X1 10 6 6

X2 -12 7 -12

max 10 7 6

7
 Mixed strategy

 A mixed strategy game exists when there is no saddle point.

Each player will then optimize their expected gain by
determining the percent of time to use each strategy.
 2-players Zero-Sum games

Penny Matching:
• Each of the two players has a penny.

• Two players must simultaneously choose whether

to show the Head or the Tail.

• Both players know the following rules:

-If two pennies match (both heads or both
tails) then player 2 wins player 1’s penny.
-Otherwise, player 1 wins player 2’s penny.
Player 2
head tail
head -1,1 1,-1
Player 1
tail 1,-1 -1,1
 Prisoner’s dilemma

• No communication:
- Strategies must be undertaken without
the full knowledge of what the other
players (prisoners) will do.

• Players (prisoners) develop dominant strategies but are not

necessarily the best one.
Payoff matrix for prisoner’s dilemma

Jane
Rat out Stay quiet

Rat out 5,5 1,8

Bob
Stay quiet 8,1 2,2
 Equilibrium

Strategic equilibrium refers to the “solution” of a

game: A state which a game will tend towards
The Prisoner’s Dilemma has one (unique Nash)
equilibrium (rat out-rat out)
No one player can unilaterally change his strategy for
a better outcome: ”I can do no better, given that the
other player keeps doing what he is doing.”
 Nash’s Equilibrium

A Nash equilibrium is a situation in which none of

them have dominant Strategy and each player makes
his or her best response
 (S, T) is Nash equilibrium if S is the best strategy to T and T is
the best strategy to S
John Nash shared the 1994 Nobel prize in
Economics for developing this idea!
This equilibrium occurs when each player’s strategy is
optimal, knowing the strategy's of the other players.
 Coordination games

coordination games are a class of games with

multiple pure strategy Nash equilibria in which
players choose the same or corresponding strategies.
situations in which all parties can realize mutual
gains, but only by making mutually consistent
decisions
 Examples

B College MG road

Models the
A
strategic conflict College 100,100 0,0
when two
players
have to choose MG road 0,0 10,10

their priorities
Pure coordination game
 Exp2 –Stag hunt

Stag Hare
A situation in which both
players (hunters) can
Stag 10,10 0,7
benefit if they cooperate
(hunting a stag).
However, cooperation Hare 7,0 7,7
might fail, because each
hunter has an alternative
which is safer because it
does not require
cooperation to succeed
(hunting a hare).
 Applications of Game Theory

• Mathematics • Psychology
• Law
• Computer Science
• Military Strategy
• Biology • Management
• Economics • Sports
• Political Science • Game Playing
• International Relations
• Philosophy