Batch Planning and Resources Allocation

14x2=28C, 14x1=14L

Conf.dr.ing. Virginia Ecaterina Oltean

Lectures 8.1, 8.2

 TWO-PERSON ZERO-SUM GAMES
1 Games with a saddle point – an introductory example
2 General characterization of games in economic context. Terms and definitions
3 Mixed strategies. The LP formulation and optimality conditions for two-person zero-sum matrix
games
4 Solving matrix games
4.1 Direct solutions for low order games
4.2 Using LP and simplex programs

Game theory is the study of multi-player decision problems.

Unlike LP and nonlinear programming, the common theme is the conflicts of interests between different
players !
It is assumed that each player plays “the best he can”, which is not valid in general in practice.

Origins: John von Neumann, 1928, “Zur Theorie der Gesellschaftsspiele“, Math.Ann., vol. 100, pp.295-320.

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Example 1. A two-person zero-sum game with saddle point.

Consider a two-person game with players P1 and P2 the payoff matrix A  (a ij )1i 3, , given by
1 j  4

  5 3 1 20 
 
A 5 5 4 6 (1)
  4 6 0  5
 

 Player P1 can choose strategies i from I  {1, 2, 3} and player P2 can choose strategies j from
J  {1, 2, 3, 4} .
 Both players P1 and P2 know the payoff matrix A, but neither knows in advance what strategy will play
its competitor.
 When P1 plays strategy i and P2 plays strategy j, the payoff to P1 is aij and the game is zero-sum in
that what P1 wins P2 loses .

 It is assumed that both players are reasonable, in the sense that each one competes with the other and
P1 wants to maximize its possible gain and P2 wants to minimize what he loses,
in the worst possible case.
 P1 thinks: “If I play i * , then my competitor P2 can choose j * so that a i* j* be the minimum of
all numbers a i* j , j  J ”
ai* j*  min ai* j % because P1 assumes that P2 wants to minimize the gain of P1
1 j  4
% which is exactly what P2 looses, i.e. P1 plays maximinj

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 P2 thinks: “If I play j * , my competitor P1 can choose i * so that a i* j* be the maximum of all numbers
a ij* , i  I ”
ai* j*  max aij* % because P2 assumes that P1 wants to maximize the loss of P2
1i 3
% which is exactly what P1 gains, i.e. P2 plays minj(maxi)

These are synthesized below:

P2 plays j
Strategy 1 2 3 4 min a ij
j
1 5 3 1 20 5
P1 plays i 2 5 5 4 6 4
3 4 6 0 5 5
max a ij 5 6 4 20
i

 By taking the maximum of the row minima, P1 is guaranteed not to get less than the amount 4 by
choosing the strategy i*  2 , hence the LOWER value of the game is v  max{5,4,5}  max min aij  4 .
i i j
( v  min ai* j , i*  2 )
j
 By taking the minima of the column maxima, P2 is guaranteed not to lose more than the amount 4 by
choosing the strategy j*  3 , hence the UPPER value of the game is
v  min{5,6,4,20}  min max aij  4 ( v  max a ij* , j*  3 )
j j i i

 In general, v  v . OBSERVE that for (i*  2, j*  3) , aij*  ai* j*  4  ai* j , aij* {1,4,0} , ai* j {5,5,4,6}

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 If v  v  v * , then the game (or the payoff matrix A) has a SADDLE POINT for the pair of pure strategies
(i*  2, j*  3) . v*  4  ai* j* is the value of the game and (i*, j*, v*)  (2,3,4) is the solution of the game.

These will be defined formally next. Note, before, that not all matrices have a saddle point, as in next
example.

Example 2. A game without saddle point. Consider a two-person game with the payoff matrix
P2 plays j
Strategy 1 2 min a ij
j

P1 plays i 1 0 1 1
2 12 0 12
max a ij 0 0
i

Thus v  max{1,1 / 2}  1 / 2 and v  min{0,0}  0 and v  v .

Note that v  max{min aij }  max aij with i*  2 but v  min aij with either j*  1 or j*  2
i j i j


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 2. GENERAL CHARACTERIZATION OF GAMES IN ECONOMIC CONTEXT.
TERMS AND DEFINITIONS

Definition. A two-person zero-sum game is a triplet   ( I , J ; ) , with

- I the set of strategies for player P1 ,
- J the set of strategies for player P2 and
-  : I  J  R , the payoff function , (i, j ) being the amount which player P2 pays to P1 in case P1
plays strategy i and P2 plays strategy j.

 If I and J are finite, i.e. I  {1,2, , m} and J  {1,2, , n} , then the payoff function  is represented by
a payoff matrix

A  (aij )1i  m, with aij  (i, j ) (2)

1 j  n
and
the game   ( I , J ; A) is called matrix game .

 In the deterministic case of a matrix game ,

P1 plays a pure strategy x  ( x1  x m ) T , with xi  1 if P1 plays i and x k  0 , k  I , k  i and
P2 plays a pure strategy y  ( y1  y n ) T , with y j  1 if P2 plays j and y k  0 , k  J , k  j .
Observe that in this case one can write: (i, j )  aij  xT Ay (3)
with x , y the STRATEGIES of P1 and P2 , respectively

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 In zero-sum matrix games :
 Both P1 and P2 know the matrix game (2)-(3)
 P1 and P2 assume that their respective opponent is reasonable, that is:

P1 wants to ensure that he will gain at least the lower value of the game
v  max min aij (4)
i j
and P2 wants to lose no more than the upper value of the game
v  min max aij . (5)
j j

A strategy i * of P1 is maximin if min ai* j  max min aij  v .

j i j

A strategy j * of P2 is minimax if max aij*  min max aij  v .

i j i
i * , j * are security startegies.
Lema. v  v
Proof. min aij  aij , for any i  I and any j  J . It results that max min aij  max aij , for any j  J .
jJ iI jJ iI
Then it follows also that max min aij  min max aij .
iI jJ iI iI

Definition. A game   ( I , J , A) has a saddle –point (i*, j*) if
aij*  ai* j*  ai* j , for all i  I and all j  J . (6.1)
The value of the game is v*  ai* j* and the solution of the game is (i*, j*, v*) . 

Note that v*  ( x*)T Ay * , with x *T , y * optimal strategies of the two players, respectively.

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 Theorem. Let (i*, j*) with v  min ai* j and v  max aij* . Then (i*, j*) is a saddle point if and only if
j i

v  v  v *. (6)

In other words, a solution of a game   ( I , J , A) is (i*, j*, v*) , with v*  ai* j* the value of the game if and
only if aij*  ai* j*  ai* j , for any i  I and any j  J . The pure strategies (i*, j*) are called optimal.

Remark. v and v are unique, but there may be several pairs of optimal strategies (i*, j*) .

CONCLUSION. If  has a saddle-point (i*, j*) , then the intelligent strategy for P1 is i * and for P2 is
j *.

But what if the game has no saddle point, like in Example 2, i.e. the players cannot take a stable decision?

The solution, proposed by von Neumann are the

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 3. MIXED STRATEGIES.
THE LP FORMULATION AND OPTIMALITY CONDITIONS FOR TWO-PERSON ZERO-SUM
GAMES

Basic idea: for games with no saddle point, to widen the sets of available strategies,
from pure strategies to strategies defined by probabilities.

Consider a game   ( I , J , A) , with I  {1,2, , m} , J  {1,2, , n} and A  (aij )1i  m, .

1 j  n

A mixed strategy for P1 is a vector of probabilities p  ( p1 ,  p m ) [0, 1] , where pi  0 ,

T m

m
1  i  m ,  pi  1.
i 1

A mixed strategy for P2 is a vector of probabilities q  (q1 ,  q n ) T [0, 1] n , where q j  0 ,

j
1  j  n ,  q j  1.
j 1

Remark. Pure strategies x  (0  1  0) T are particular cases of mixed strategies.

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 The expected payoff to P1 if P2 plays j is
q1qj qn
(instead of aij )
1  j  n m
p1 1   pi aij (“joacă coloana j ponderată”) (7)
  i 1

pi i   a ij so P1 expects that P2 will try to minimize his gain and seeks to

 maximize his expected gain
pm m
m m
max[min  p i a ij ] subject to  pi  1, pi  0 , 1  i  m . (8)
j i 1 i 1

Hence, the two optimisation problems are:

P1 : P: max v subject to AT p  ve m , e mT p  1 , p  0 , with e m  R m , em (i)  1, 1  i  m .
P2 : D: min v subject to Aq  ve n , e nT q  1 , q  0 , with e n  R n , en ( j )  1, 1  j  n .

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Preliminaries to the formulation of optimality conditions two-person zero-sum games:
the LP form of problem P.
Recall the Lagrangian approach for LP (Lecture 9): We considered two problems:
Primal problem Dual problem
T
P: max c x subject to Ax  b , x  0 D: min bT λ subject to AT λ  c , λ  0 .
x Rn λRm
and with slack variables

P: max c T x subject to Ax  z  b , x  0 , z  0 D: min bT λ subject to AT λ  v  c , λ  0 , v  0 .

x Rn, z Rm λRm , v Rn

For P and D, the primal optimal solution ( x*, z*) and the dual optimal solution ( λ*, v*) satisfy, together, the
complementary slackness (CS) condition (firstly encountered in the Theorem of price equilibrium in the
Introduction)
(v*)T x*  0  ( λ*)T z (CS)

which is equivalent to (c T  ( λ*)T A) i xi*  0  *j ( Ax * b) j , for any i  1, , n and j  1, , m .

______________________________

Return to the two-person matrix game problem:

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P1 : P: max v subject to AT p  ve m , e mT p  1, p  0 , with e m  R m , em (i)  1, 1  i  m .

 Note that P is not in a form to apply immediately the LP form, because v is unconstrained in sign !!!
(so no finite max can be ensured, see Lagrange)
 Add to the payoff matrix A the value    min aij , to make sure that aij  0 , i  I and j  J , and thus
i, j

v  0 . This doesn’t change the solution (i*, j*) , but only adds  to the value of the game.

 Define
pi
x  ( x1  xm )T with xi  , i  1: m , (9)
v
so P can be rewritten as

1
P1 : P: max v subject to AT x  e m , e mT x  , x  0 , with e m  R m , em (i)  1, 1  i  m .
v
Similarly, defining
qj
y  ( y1  y n )T , with y j  , j  1: n (10)
v
the primal and the dual optimization problems for a two-person matrix game are

P1 : P: min e mT x subject to AT x  e m , x  0 , with e m  R m , em (i)  1, 1  i  m . (11.1)

P2 : D: max e nT y subject to Ay  e n , y  0 , with e n  R n , en (i)  1, 1  j  n (11.2)

These are now LP problems.

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With slack variables, the two above optimization problems become:

P1 : P: min e mT x P2 : D: max e nT y
AT x  z  e m , x  0 , z  0 Ay  w  e n , y  0 , w  0 .
1 1
The optimal solutions ( x*, z*) and ( y*, w*) , with x*  p * and y*  q*
v* v*
satisfy the complementary slackness condition:

q * ( p*)T q * (q*)T p* T p*
(w*)T x*  0  ( y*)T z  (e m  AT x)T y*  ( Ay  e n )T x *  e mT    A   AT   en  .
v* v* v* v* v* v*
2
Now multiplying at the left in both sides of the relation with v * , from e nT q * e mT p*  ( p*) T Aq * it results:
v*

2( p*)T Αq*  v * (e mT q * e nT p*) . (12)

Also, in view of the fact that p * and q * are vectors of probabilities,

e mT p*  1 , e nT q*  1 , (13)

which, together with (12), gives the complementary slackness condition for the original optimization
problem:

( p*)T Αq*  v * , (14)

specifying also the optimal value of the game. Compare (14) with (3).
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Let   ( I , J , A) , with I  {1,2, , m} , J  {1,2, , n} and the payoff matrix A  (aij )1i  m, .
1 j  n
m
P1 plays the mixed strategy p  ( p1 ,  pm )T , pi  0 , 1  i  m ,  pi  1 and
i 1
j
P2 plays the mixed strategy q  (q1 ,  qn )T , q j  0 , 1  j  n , qj 1 .
j 1
Define:
P1 : P: max v subject to AT p  ve m , e mT p  1 , p  0 , with e m  R m , em (i)  1, 1  i  m .
P2 : D: min v subject to Aq  ve n , e nT q  1 , p  0 , with e n  R n , en ( j )  1, 1  j  n .

Theorem. Optimality sufficient conditions for two-person matrix games. If p * , q * and v * satisfy
AT p*  v * e m , e mT p*  1, p*  0 , with e m  R m , em (i)  1, 1  i  m (primal feasibility)
Aq*  v * e n , e nT q*  1 , q*  0 , with e n  R n , en ( j )  1 ,1  j  n (dual feasibility)
( p*)T Αq*  v * (complementary slackness)
then p * and q * are optimal for P and D respectively and v * , the common value of the two problems, is the
value of the game.
Proof. This is the Lagrangian sufficiency theorem.

Remark. The necessity part of the duality result is also true and si known as the

Fundamental Theorem of Matrix Games (see Gale, 1960): In mixed strategies, any payoff matrix has a
saddle-point.

T T
In other words, this equivalent to min max p Αq  max min p Αq !!!!
q p p q
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 4. FINDING SOLUTIONS FOR GAMES

4.1. Direct solution: possible only for games with low order matrices
Example 3 Graphical solution in case of mixed strategies [bialas, 2005]
Consider the two-person zero-sum game with payoff matrix
 3  1
A .
 0 1
 v  0 , for i*  2 and v  1 for j*  2 .
Denote:
p  ( p1 p2 )T , p1  p2  1 the mixed strategy of P1 and
q  (q1 q2 )T , q1  q2  1 the mixed strategy of P2 .
The value of the game is
v( p1, q1 )  pT Aq  5 p1q1  2 p1  q1  1 .
 If P2 plays j  1 , then the payoff of P1 is v  3 p1  0 p2 .
 If P2 plays j  2 , then the payoff of P1 is v   p1  p 2 .
 The optimization problem of P1 is
P: max p min{3 p1  0 p2 , p1  p2 } , or P: max{v} subject to 3 p1  0 p2  v ,  p1  p2  v , p1  p2  1 , pi  0 ,
i  1,2 .

 The optimization problem of P2 is

D: min q max{3q1  q2 ,0q1  q2 } or D: min{v} subject to 3q1  q2  v , 0q1  q2  v , q1  q2  1 , q j  0 , j  1,2 .

The solutions of the two optimization problems can be computed graphically:

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 Figure 1. Graphical representation of the optimization problems for players P1 (left) and P2 .
The solution is p*  (1 / 5 4 / 5)T , q*  (2 / 5 3 / 5)T and v*  3 / 5 .

Example 4. Eliminating dominated strategies [kennedy, 2010].

We need a definition firstly:

For the row player P1 : strategy i ' dominates strategy i if aij  ai ' j for all j  1,2,, n .
For the column player P2 : strategy j ' dominates strategy j if aij  aij' for all i  1,2,, m .

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A player will never play a strategy that is dominated by another (except in the case where the payoffs are
identical for all outcomes).

Remark. For a rigorous definition of the concept of domination, consult [peters, 2008].

Consider now payoff matrix:

2 3 4 
 
A   3 1 1 2
1 3 2 
 
Clearly v  max{2, 1 2 ,1}  2 , and v  min{3,3,4}  3 , so we seek for mixed strategies.
 For P1 : row 1 dominates row 3, so that an optimal row strategy p  ( p1 p2 p3 )T will put now weight
on row 3, hence, consider only mixed strategies p  ( 1   0)T ,  [0,1] ;  has to be computed.

 The optimization problem of solving the game becomes:

Find the maximum v and p to satisfy the feasibility conditions AT p  ve3 , that is

2  3(1  )  3    v (1)
3  (1  )  1  2  v (2)
4  0.5  (1  )  0.5  3.5  v , (3)
0   1
Plotting the three lines for equality in (1), (2) and (3) gives the representation in Figure 2.

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 v v = 3.5+0.5
v = 1+2
v*=7/3

1
v = 3

0.5
*=2/31 
Figure 2. Example 2: Graphical representation of the feasibility set for the primal optimization problem.
 The optimal point is (*, v*)  (1)  (2) hence
v*  7 3 , *  2 3 and p*  (2 3 1 1 0) T .
3
The expected payoff of P1 , if P1 plays i and P2 plays j is  pi* aij .
i 1

 The optimal strategy for P2 , q*  (q1* q 2* q3* ) T results from the complementary slackness condition

( p*)T Αq*  v * .
Show that q*  ( 1   0) T and give a geometric interpretation (Exercise !).
4.2 The LP approach
Given the payoff matrix A , the optimization problem and its dual
 can be put in the form (11.1), (11.2), respectively and then
 solved (using, for example, linprog in the MATLAB Optimization Toolbox).

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References
[achmanov, 1984] S. Achmanov, Programmation linéaire, Editions MIR, Moscou, 1984.
[bialas, 2005] Lecture notes in Game theory. Dept. of Industrial and Systems Engineering, University of Buffalo, USA,
http://www.ise.buffalo.edu/
[gale,1960] David Gale. The theory of Linear Economic Models, McGraw Hill Book Company, New York, 1960.
[gintis, 2009] Herbert Gintis. Game theory evolving. A problem-centred introduction to modelling strategic interactions.2nd
edition, Princeton University Press, 2009.
[kennedy, 2010] Douglas Kennedy, Lecture notes in Optimization, Trinity College Cambridge,
http://www.trin.cam.ac.uk/dpk10/index.html
[peters,2008] Hans Peters, Game theory. A multi-leveled approach. Springer Verlag, 2008.

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