Game theory model

Game theory models strategic behaviour by agents who understand that their actions affect the
actions of other agents.

Game theory attempts to mathematically capture behaviour in strategic situations, or games, in

which an individual's success in making choices depends on the choices of others

Some Applications of Game Theory

a) The study of oligopolies (industries containing only a few firms)

b) The study of cartels; e.g. OPEC
c) The study of externalities; e.g. using a common resource such as a fishery.
d) The study of military strategies.

A game consists of

a. a set of players : Who participates in the game?

b. a set of strategies: What can each player do?

c. Payoff: What is the outcome of the game?

Two-Player Games

A game with just two players is a two-player game.

We will study only games in which there are two players, each of whom can choose between
only two strategies.

Example

The players are called A and B.

Player A has two strategies, called “Up” and “Down”.

Player B has two strategies, called “Left” and “Right”.

The table showing the payoffs to both players for each of the four possible strategy
combinations is the game’s payoff matrix.

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Optimal strategies

Maximin strategy

1. For each row of the payoff matrix. Find the smallest entry in that raw.
2. Choose the row for which the entry found step 1 is as largest as possible. this row
constitutes R’s “best “ move

Example 1 the payoff matrix associated with a game is given by

3 −6
A= [ ] Find Maximin strategy
2 1
Solution

3 −6 −6
A= [ ]
2 1 1 ← Largest of the row minumum

For these results, it’s seen that R’s “best “move is second row. By choosing this move R stands
to win at least $1.

Minmax strategy

1. For each column of the payoff matrix. Find the largest entry in that column raw.
2. Choose the column for which the entry found step 1 is as smallest as possible. this
column constitutes C’s “best “ move

Example 2 the payoff matrix associated with a game is given by

3 −6
A= [ ] Find Minmax strategy Solution
2 1
Solution

3 −6
A= [ ]
2 1

𝑐𝑜𝑚𝑙𝑢𝑚𝑛 𝑚𝑎𝑥𝑖𝑚𝑎 3 1 ↓ smallest of the colum maxima

For these results,it’s seen that C’s “best “move is second column. By choosing this move C
stands to lose at most $1.

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Example 3 the payoff matrix associated with a game is given by

−3 −2 4
A = [−2 0 3] Find Maximin strategy And Minmax strategies for each player
6 −1 1
Solution

−3 −2 4 −3
A= [−2 0 3] −2
6 −1 1 −1←Largest of yhe row min

colomn maxima 6 0 4

smallest of the colum maxima

For these results, we conclude that the maximn strategy (for the row player) is to play row 3,
where as the minmax strategy (for the column player) is to play second column

Example 4 determine the Maximin strategy and Minmax strategies for each player whose
payoff matrix associated with a game is given by

3 4 −4
A= [ ]
2 −1 −3
Solution

3 4 −4 −4
A= [ ] −3Largest of t he row minumum
2 −1 −3

colomn maxima 3 4 −3 ↓smallest of the colum maxima

For these results, we conclude that the maximn strategy (forthe row player) is to play row 2,
where as the minmax strategy (for the column player) is to play third column

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A strictly Determined Game

A strictly Determined Game is characterized by the following properties;

1. There is an entry in the payoff matrix that is simultaneously the smallest entry in its row
and the largest entry in its column. This entry is called the saddle point of the game.
2. The optimal strategy for the row player is precisely the maximn strategy and is the row
containing the saddle point. The optimal strategy for the column player is precisely the
minimax strategy and is the column containing the saddle point.

The saddle point of a strictly determined Game is also referred to as the value of the game.

If the value of a strictly Determined Game is positive, then the game favors the row player

If the value of a strictly Determined Game is negative, then the game favors the column player

If the value of a strictly Determined Game is zero, the game is called a fair

Example5 a two- persons, zero-sum game is defined by the pay off matrix

1 2 −3
A = [−1 2 −2]
2 3 −4
a. Show the game is strictly determine and find the saddle point(s) for the game
b. What is the optimal strategy for each player?
c. What is the value of the game? Does the game favor one player over the other?

Solution

a. First we determine the minimum of each row and the maximum of each column of
the payoff matrix A and display these minima and maxima as follows

1 2 −3 −3
A = ⌈−1 2 −2⌉ −2Largest of t he row minumum
2 3 −4 −4
colomn maxima 2 3 −2 ↓smallest of the colum maxima

From these results, we see that the circle entry -2 , is simultaneously the smallest entry in its
row and the largest entry in its column. Therefore the game is strictly determined, with the
entry a23 called the saddle point of the game.

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 b. From these results. We see The optimal strategy for the row player is precisely to the
move represented by the second row of the matrix and The optimal strategy for the
column player is to make move represented by the third column of the matrix
c. The value of the game is -2, which implies that if both players adopt their best strategy
for the column player will win 2 units in player. Consequently, the game favors the
column player.

Game may have more than one saddle point as the next example

Example6 A two- persons, zero-sum game is defined by the pay off matrix

4 5 4
A = ⌈−2 −5 −3⌉
4 6 8
a. Show the game is strictly determine and find the saddle point(s) for the game
b. What is the optimal strategy for each player?
c. What is the value of the game? Does the game favor one player over the other?

Solution

a. First we determine the minimum of each row and the maximum of each column of
the payoff matrix A and display these minima and maxima as follows

4 5 4 4Larger of t he row minumum

A= ⌈−2 −5 −3 ⌉ −5
4 6 8 4Larger of t he row minumum

colomn maxima 4↓smallest of the colum maxima 6 8

From these results, we see that the circle entry 4, is simultaneously the smallest entry in its row
and the largest entry in its column. Therefore the game is strictly determined, in this case it has
two saddle point; the entry a11 = 4 and a31 = 4 in general. It can be shown that every saddle
point of a payoff matrix must have the same value.

b. Since the game has two saddle points. Both lying in the first column and in the first
and third rows of the payoff matrix We see The optimal strategy for the row player
consists of playing either row 1 or row 3 consistently whereas and The optimal
strategy for the column player consists of playing column 1repeatedly .
c. The value of the game is 4, which implies the game favors the row player.

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Exercise 1-5

i. Determine the Maximin strategy And Minmax strategies for each player whose
payoff matrix associated with a game is given by
2 3
1. A = ⌈ ⌉
4 1

1 3 2
2. A = [ ]
0 −1 4

3 2 1
3. A = [1 −2 3]
6 4 1

4 2 1
4. A = 1 0 −1
2 1 3

1 4
5. A = 2 −2
3 0
ii. In exercise 6-12A two- persons, zero-sum game is defined by the pay off matrix
a) Show the game is strictly determine and find the saddle point(s) for the game
b) What is the optimal strategy for each player?
c) What is the value of the game? Does the game favor one player over the other?

−2 1 3
6. A = ⌈ 3 2 2⌉
2 −1 4

2 3
7. A = ⌈ ⌉
1 −4

1 3 2
8. A = ⌈ ⌉
−1 4 −6

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 1 3 4 2
9. A = ⌈ 0 2 6 −4⌉
−1 −3 −2 1

1 −1 3 2
10. A = ⌈ 1 0 2 2⌉
−2 2 3 −1

3 −1 0 −4
11. A = ⌈ 2 1 0 2⌉
−3 1 −2 1
−1 −1 −2 1

2 4 2
12. A = ⌈ 0 3 0⌉
−1 −2 1

Game with mixed strategies

Expected value of game
𝑞1
𝑞
Let 𝑃 = 𝑝1 𝑝2 𝑝3 … 𝑝𝑚 and 𝑄 = 2 be vectors representing the mixed strategies’ for the row
𝑞𝑛
player P and the column player Q, respectively, in game with an 𝑚 ∗ 𝑛 payoff matrix

a11 a12 … a1n

A= ⌈a21 a22 . . .a2n ⌉ then the expected value of the game is given
. .. … …
am1 am2 … amn

a11 a12 … a1n 𝑞1

E = PAQ = (𝑝1 𝑝2 𝑝3 … 𝑝𝑚 ) ⌈a21 a22 . . .a2n ⌉ ( 𝑞2 )
. .. … … 𝑞𝑛
am1 am2 … amn

We now look at several examples involving the computation of the expected value of game

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Example 1

Consider coin matching game played by row player and column with a payoff matrix is given by

3 −2
A= ⌈ ⌉
−2 1
Compute the expected value of the game if row player the mixed strategy P and column player
the mixed strategy Q, where

0.5
a. 𝑃 = [0.5 0.5] 𝑎𝑛𝑑 𝑄 = [ ]
0.5
0.1
b. 𝑃 = 0.8 0.2 𝑎𝑛𝑑 𝑄 =
0.9
Solution

a. We compute
3 −2 0.5
E = PAQ = [0.5 0.5] ⌈ ⌉ [ ] = 0 Thus, in repeated plays of the game, it may
−2 1 0.5
be expected in the long run that the game will end in draw

Example6 2 two- persons, zero-sum game is defined by the pay off matrix

1 −2
𝐴 = [−1 2]
3 −3
a. find the expected payoff to the row player if the row player R uses her maximn pure
strategy and the column player C uses her minimax strategy
b. find the expected payoff to the row player if the row player R uses her maximn pure
strategy 50% of the time and chooses each of the other two rows 25% of the time
while the column player 50% of the time
Solution
a. The maiximin and the minmax strategies for the row player and column
players respectively may be found using the method of last section
1 −2 −2
[−1 2] −1𝑚𝑎𝑥𝑖𝑚𝑖𝑛
3 −3 −3
𝑐𝑜𝑙𝑢𝑚𝑛 𝑚𝑎𝑥𝑖𝑚 3 2𝑀𝑖𝑛𝑖𝑚𝑎𝑥
b. In this case. R’s mixed may be represented by the row vector
𝑃 = [0.25 0.50 0.25]
And C’s mixed may be represented by the column vector
0.5
𝐶= [ ]
0.5

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 The expected payoff to the
1 −2
[ ] 0.5
𝐸 = 𝑃𝐴𝑄 = 0.25 0.50 0.25 [−1 2 ] [ ] = 0.125
0.5
3 −3
Example6 3 two- persons, zero-sum game is defined by the pay off matrix

The payoff matrix for game is given by

2 3 −1
𝐴 = [−3 2 −2]
3 −2 2
A. find the expected payoff to the row player if the row player R uses her maximn
pure strategy and the column player C uses her minimax strategy
B. find the expected payoff to the row player if the row player R uses her maximn
strategy pure strategy 40% of the time and chooses each of the other two rows
30% of the time while the column player C uses her minimax strategy pure
strategy 50% of the time and chooses each of the other two column 25% of the
time
C. Which pair of strategies favors the row player?

Exercise

I. Find the expected payoff E of each of the following games whose payoff matrix and
strategies P and Q (for the row and column players respectively) are given
1 2 3 2 0.5
1. ⌈ ⌉ P = [5 5] 𝑄 = [ ]
−3 1 0.5
2 0 −2 0.3
2. [1 −1 3 ] P = (0.2 0.6 0.2) Q = [0.5]
2 1 −4 0.2
1 −4 2 0.6
3. ⌈2 1 −1⌉ P = [0.2 0.3 0.5] Q = [0.2]
2 −2 0 0.2

ii. The payoff matrix for game is given by

−3 3 2
[−3 1 1]
1 −2 1

a. find the expected payoff to the row player if the row player R uses her maximn pure
strategy and the column player C uses her minimax strategy
b. find the expected payoff to the row player if the row player R uses her maximn pure
strategy 50% of the time and chooses each of the other two rows 25% of the time while

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 the column player C uses her minimax pure strategy 60% of the time and chooses each
of the other two column 20% of the time
c. Which pair of strategies favors the row player?
iii. The payoff matrix for game is given by
4 −3 3
[−4 2 1]
3 −5 2

a. find the expected payoff to the row player if the row player R uses her maximn
pure strategy and the column player C uses her minimax strategy
b. find the expected payoff to the row player if the row player R uses her maximn
pure strategy 40% of the time and chooses each of the other two rows 30% of
the time while the column player C uses her minimax pure strategy 50% of the
time and chooses each of the other two column 25% of the time
c. Which pair of strategies favors the row player?

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