Operations Research

Game Theory

Dr. K.VENKATARAMANA
Associate Professor,
Dept. of Computer Science & Systems Engineering
Andhra University

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Syllabus

Introduction
• Game is defined as an activity among two or more persons (parties)
as per set of rules at the end of which each person gets some
benefits or bears loss.
• Game theory is the study of strategic, interactive decision making
among rational individuals or organizations.
• Game theory is a branch of applied mathematics that provides tools
for analyzing situations in which parties ( called players) make
decisions that are inter dependent.
• The Theory of Games was born in 1944 with the publication of
Theory of Games and Economic behavior by Hungarian-born
American mathematician John von Neumann
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Basic Terminologies
• Player : Each participant (interested party) of a game is called a player.
• Strategy: The strategy of a player is the predetermined rule by which player
decides his course of action from his own list during the game. (Plan of
action)
• 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 strategies with
fixed probabilities.
• Optimal strategy : The course of action which maximizes the profit of a
player or minimizes his loss is called an optimal strategy.
Basic Terminologies

• 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.
• Example:
Cont…

Assumptions of Game theory:

1. Each player has finite number of strategies.
2. Number of strategies for each player need not be same.
3. Both players knows their own pay – off matrix.
4. + ve sign of payoff matrix indicates gain of row player and loss of column
player
–ve sign of payoff matrix indicates gain of column player and loss of row
player.
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Cont…

• Zero-sum game: A game in which the total payoffs to all the players at the
end of the game is zero is referred to as a zero-sum game.

• Two - person Zero - sum game: In a game with two players, if the gain of
one player is equal to the loss of another player then that game is called
two – person Zero – Sum game

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Maximin-Minimax Principle

• Maximin Criteria: The maximizing player lists his minimum gains from
each strategy and selects the strategy which gives the maximum out of
these minimum gains.
• Minimax Criteria : The minimising player lists his maximum loss from
each strategy and selects the strategy which gives him the minimum loss
out of these maximum losses.

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Saddle Point
• A saddle point of a matrix is the position of such an element in the payoff
matrix, which is minimum in its row and the maximum in its column.

• The game is said to have a saddle point (equilibrium point) and the
corresponding strategies are called optimal strategies. If there are two or
more saddle points, they must be equal.
• The amount of payoff, i.e., V at an equilibrium point is known as the value
of the game.
• Solution of games with saddle point, it is feasible to find out
• Best strategy for player A
• Best strategy for player B
• The value of the game

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Cont…
Example 1: Solve the game with the following pay-off matrix.

Sol: We use maxmin-minmax principle for solving the game. First find the
minimum of each row and maximum of each column.

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Cont…

Then find the Minimum of Col. Maximum and Maximum of Row minimum
i. e Min [Col. Max] = Min { 5, 3, 1, 5, 6} = 1 and Max [Row. Min] = {-2, 1, -4, -6}
=1

We see that the maximum of row minima = the minimum of the column
maxima. So the game has a saddle point.

Strategy of player A – 2
Strategy of player B - III

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Value of the game = 1 10
Cont…
Example 2: Solve the game with the following pay-off matrix.

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Cont…
Example 2: Solve the game with the following pay-off matrix.

Sol: We use maxmin-minmax principle for solving the game. First find the
minimum of each row and maximum of each column.

Maximum of {-3, -1, 2, 12} = 12

Minimum of {15, 14, 18, 12, 20}= 12

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Cont…
We see that the maximum of row minima = the minimum of the column
maxima. So the game has a saddle point. The common value is 12. Therefore
the value V of the game = 12.

The best strategy for player A is strategy =4

The best strategy for player B is strategy = IV
The game is favourable to player A.

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Cont…
Example 3: Solve the following game:

The best strategy for player A is strategy 4.

The best strategy for player B is strategy II.
Since the value of the game is negative, it is concluded that the game is
favourable to player B. 14
Cont…
Example 4: Example 5:

Example 6: Example 7:

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Mixed Strategy: Game without A Saddle Point
Consider the following Pay – off matrix with each one of the first player A and
the second player B has exactly two strategies, we have a 2 x 2 game.

Here, Maxi [Min] ≠ Mini [Max]

7≠ 9
We see that max {row minima} and min {column maxima} are not equal. Hence
the game has no saddle point. In such a case, both the players must
determine an optimal mixture of strategies to find an equilibrium point. The
optimal strategy mixture for each player may be determined by assigning to
each strategy its probability of being chosen. The strategies so determined are
called mixed strategies.
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Mixed Strategy: Game without A Saddle Point
For the solution of games with mixed strategies, the following methods are used

1. 2 x 2 game without saddle point (Oddments or Algebraic method)

2. Dominance Property Method.

3. Graphical method for (m x 2) or (2 x n) games

4. Linear Programming Method

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Mixed Strategy: Game without A Saddle Point
1. 2 x 2 game without saddle point (Oddments or Algebraic method):
Consider a 2 x 2 two – Person Zero – Sum game without any saddle point,

having the pay – off matrix for the player A as

𝑨𝟏 𝑨𝟐
The optimal mixed strategy for Player A is SA =
𝒑𝟏 𝒑𝟐

𝑩𝟏 𝑩𝟐
The optimal mixed strategy for Player B is SB =
𝒒𝟏 𝒒𝟐

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Mixed Strategy: Game without A Saddle Point
Example 1: Solve the following game by algebraic (or) Oddments method

Sol:
Here, Max [Min] ≠ Min [Max] (1 ≠ 4)
So the game has no saddle point.
Therefore it is a mixed game.

𝒗22 − 𝒗21 2−4 1 2

𝒑1 = = = , 𝒑2 =
𝒗11 + 𝒗22 − (𝒗12 + 𝒗21 ሻ 1 + 2 − (4 + 5ሻ 3 3

𝒗22 − 𝒗12 2−5 1 1

𝒒1 = = = , 𝒒2 =
𝒗11 + 𝒗22 − (𝒗12 + 𝒗21 ሻ 1 + 2 − (4 + 5ሻ 2 2

𝒗11 . 𝒗22 − 𝒗21 . 𝒗12 1×2−5×4 −18

𝒗 = = = = 3
𝒗11 + 𝒗22 − (𝒗12 + 𝒗21 ሻ 1 + 2 − (4 + 5ሻ −6
Mixed Strategy: Game without A Saddle Point
Here, Max [Min] ≠ Min [Max] (1 ≠ 4)
So the game has no saddle point.
Therefore it is a mixed game.

𝒗22 − 𝒗21 2−4 1 2

𝒑1 = = = , 𝒑2 =
𝒗11 + 𝒗22 − (𝒗12 + 𝒗21 ሻ 1 + 2 − (4 + 5ሻ 3 3
𝒗22 − 𝒗12 2−5 1 1
𝒒1 = = = , 𝒒2 =
𝒗11 + 𝒗22 − (𝒗12 + 𝒗21 ሻ 1 + 2 − (4 + 5ሻ 2 2
𝒗11 . 𝒗22 − 𝒗21 . 𝒗12 1×2−5×4 −18
𝒗 = = = = 3
𝒗11 + 𝒗22 − (𝒗12 + 𝒗21 ሻ 1 + 2 − (4 + 5ሻ −6
𝑨𝟏 𝑨𝟐
Interpretation: Optimal strategy for Player A is = 𝟏 𝟐 i. e. out of 3 trials,
𝟑 𝟑
player A has used his first strategy once and his second strategy twice.

𝑩𝟏 𝑩𝟐
Optimal mixed strategy for Player B is = 𝟏 𝟏 i. e. out of 2 trials, player X
𝟐 𝟐
will use his first strategy once and his second strategy once.
Mixed Strategy: Game without A Saddle Point
Example 2: Solve the following game

Sol:

Here, Max [Min] ≠ Min [Max] (7 ≠ 9)

So the game has no saddle point.
Therefore it is a mixed game.

𝒗22 − 𝒗21 11 − 5 3 1
𝒑1 = = = , 𝒑2 =
𝒗11 + 𝒗22 − (𝒗12 + 𝒗21 ሻ 9 + 11 − (7 + 5ሻ 4 4
𝒗22 − 𝒗12 11 − 7 1 1
𝒒1 = = = , 𝒒2 =
𝒗11 + 𝒗22 − (𝒗12 + 𝒗21 ሻ 9 + 11 − (7 + 5ሻ 2 2
𝒗11 . 𝒗22 − 𝒗21 . 𝒗12 9 × 11 − 7 × 5 64
𝒗 = = = =8
𝒗11 + 𝒗22 − (𝒗12 + 𝒗21 ሻ 9 + 11 − (7 + 5ሻ 𝑨𝟏8 𝑨𝟐
The optimal mixed strategy for Player A is SA = 𝟑 𝟏 i.e out of 4 trials, player A
𝟒 𝟒
is used his first strategy three times and his second strategy once.
𝑩𝟏 𝑩𝟐
The optimal mixed strategy for Player B is SB = 𝟏 𝟏 out of 2 trials, player B will
𝟐 𝟐
use his first strategy once and his second strategy once.
Mixed Strategy: Game without A Saddle Point
Dominance Method
• Dominance method is also applicable to pure strategy and mixed strategy
problem.
• Principle of Dominance. The Principle of Dominance states that if the
strategy of a player dominates over the other strategy in all condition then
the later strategy is ignored because it will not effect the solution in any
way.
• Dominance property for rows: X ≤ Y i.e. if all the elements of a
particular row X are less than or equal to the corresponding elements of
another row Y then delete row X (row X is dominated by row Y). The
elements of a particular row X can also be compared with an average of
two or more other rows and if the elements of the row X are less than or
equal to the corresponding elements after taking the average then delete
row X.
• Dominance property for columns: X ≥ Y i.e. if all the elements of a
particular column X are greater than or equal to the corresponding
elements of another column Y then delete column X (column X is
dominated by column Y). The elements of column X can also be
compared with an average of two or more columns and if the elements
of column X are greater than the corresponding elements after taking
the average then delete column X.
Dominance Method
Graphical Method
The graphical method is used to solve the games whose payoff matrix has
1. 2 rows and n columns (2 x n)
2. m rows and two columns (m x 2)
Algorithm for solving 2 x n matrix games:
Step 1: Draw two vertical axes 1 unit apart. The two lines are x1 = 0, x1 = 1
Step 2: Take the points of the first row in the payoff matrix on the vertical line x1 = 1
and the points of the second row in the payoff matrix on the vertical line x1 = 0.
Step 3: The point a1j on axis x1 = 1 is then joined to the point a2j on the axis
x1 = 0 to give a straight line. Draw ‘n’ straight lines for j=1, 2… n and determine
the highest point of the lower envelope obtained. This will be the maximin point.
Step 4: The two or more lines passing through the maximin point determines the
required 2 x 2 payoff matrix. This in turn gives the optimum solution by making
use of analytical method.
Graphical Method
The graphical method is used to solve the games whose payoff matrix has
1. 2 rows and n columns (2 x n)
2. m rows and two columns (m x 2)
Algorithm for solving m x 2 matrix games
Step1: Draw two vertical axes 1 unit apart. The two lines are x1 = 0 and x1 = 1
Step 2: Take the points of the first row in the payoff matrix on the vertical line
x1 = 1 and the points of the second row in the payoff matrix on the
vertical line x1 = 0.
Step 3: The point a1j on axis x1 = 1 is then joined to the point a2j on the axis
x1 = 0 to give a straight line. Draw ‘n’ straight lines for j =1, 2… n and
determine the lowest point of the upper envelope obtained. This will
be the minimax point.
Step 4: The two or more lines passing through the minimax point determines
the required 2 x 2 payoff matrix. This in turn gives the optimum
solution by making use of analytical method.
Mixed Strategy: Game without A Saddle Point
For the solution of games with mixed strategies, the following methods are used
1. 2 x 2 game without saddle point (Oddments or Algebraic method)
2. Dominance Property Method.
3. Graphical method for (m x 2) or (2 x n) games

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