GAME THEORY

Competitive

situation is called a game. Game represents conflict between two or more parties. Game is defined as an activity between two or more persons involving activities by each person according to a set of rules ,at the end of which each person receives some benefit or satisfaction or suffers loss. Game theory is concerned with the study of decision making in situations where two or more opponents are involved under conditions of competition and conflicting interests Main objective in the theory of games is to determine the rules of rational behavior in the game situations, in which outcomes are dependent on the actions of the interdependent players. Each players definitely has number of possible outcomes with different values to them

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All competitive situations having the following properties are termed as game: 1. There are a finite number of competitors or players. 2. For each of the competitors, there are a number of possible courses of action or strategies. 3. The interest of each other is conflicting in nature. 4. A play occurs when each player chooses one of his courses of action. 5. Every combination of course of action determined an outcome, which results in a gain to each player. (Loss is considered as negative gain)

Number of players 2 Players Two-person game More than two players n person game

Zero Sum game -If in a game the gains to one player are exactly equal to the losses to another player, then the sum of the gains and losses equals to zero
Strategy - It is the list of all possible actions (moves or course of action) that he will take for every outcome that might arise. Optimal strategy - The particular strategy by which a player optimizes his gains or losses without knowing the competitors strategies is called optimal strategy. Value of a game - The expected outcome per play when players follow their best or optimal strategy.

Two types of strategies

1. Pure strategy: It is decision rate, which is always used by the player to select the particular course of action. If a player knows exactly what the other player is going to do, a deterministic situation is obtained and Objective of the players is to maximize gains A pure strategy is usually represented by a number with which the course of action is associated 2. Mixed strategy: When both the players are guessing as to which course of action is to be selected on a particular occasion ,a probabilistic situation is obtained and the objective function is to maximize the expected gain The mixed strategy is a selection among pure strategies with fixed probabilities

Two person zero sum game :

A game which has only two players, where a gain of one player is the loss of the other, so that the resultant is zero (rectangular game). Pay off is the outcome of playing the game. A pay off matrix is a table showing the amounts received by the player named at the left hand side after all possible plays of the game. The player named at the top of the table makes the payment.

If the value of the game is zero, then the game is called as Fair game ,otherwise the game is strictly determinable

If a player A has m-courses of action and player B has ncourses, then a pay off matrix is constructed. 1. Row designations for each matrix are the courses of action available to A. 2. Column designations for each matrix are the courses of action available to B. 3. With a two person zero sum game, the cell entries in Bs payoff matrix will be the negative of the corresponding entries in As pay off matrix and the matrices will appear as follows.

As pay off matrix

Player B B1 B2 B3 a11 a12 a13 a21 a22 a23 a31 a32 a33 . . . . . . am1 am2 am3 Bn a1n a2n a3n . . . amn

A1 A2 A3 Player A . . Am

Bs pay off matrix

Player B B1 B2 B3 Bn A1 -a11 -a12 -a13 -a1n A2 -a21 -a22 -a23 -a2n A3 -a31 -a32 -a33 -a3n . . . . . . . . . . . Am -am1 -am2 -am3 -amn

Player A

Pure strategies (MINIMAX & MAXMIN Principles) Games with saddle point:
1. For player A minimum value in each row represents the least gain if A chooses a particular strategy. These are written in the matrix by row minima. Then A selects the strategy that gives largest gain among the row minimum values. The choice of player A is maximin principle and the corresponding gain is maxmin value of the game. 2. For player B, who is assumed to be a loser, the maximum value in each column represents the maximum loss if B chooses a particular strategy. They are column maxima. B has to select a strategy that minimizes the maximum loss. This choice of player b is called the minimax principle and the corresponding loss is minimax value of the game.

Algebraic method

Player B a11 a12 Player A a21 a22 (A plays strategy a1 with probability p1 and plays strategy a2 with probability 1p1) a22 - a21
P1 = P2 = 1 P1; a22 - a12 a11 + a22 - (a12 + a21)

q1 =
a11 + a22 - (a12 + a21) q2 = 1 q1; a11 a22 - a12 a21 V = a11 + a22 - (a12 + a21) A game is said to be fair game, if minimax = maximin value and both equal to zero. Said to be strictly determinable if minimax = maximin and both equals to value of the game.

Rules to determine saddle point:

1. Select the minimum (lowest) element in each row of the payoff matrix and write them under row minima heading. Then select a largest element among these elements and enclose it in a rectangle. 2. Select the maximum (largest) element in each column of the payoff matrix and write them under column maxima heading. Then select a lowest element among these elements and enclose it in a circle. 3. Find out the element (s), which is same in the circle as well as rectangle, and mark the position of such element (s) in the matrix. This element represents the value of the game and is the saddle point.

Rules of Dominance
For player B, if each element in a column say Cr, is greater than or equal to the corresponding element in another column say Cs, then the column Cr is dominated by the column Cs. So delete column Cr from the pay off matrix. i.e., player B will lose more by choosing strategy Cr than by choosing strategy for column Cs. 2. For player A, if each element in a row Rr, is less than or equal to the corresponding element in another row Rs, then the row Rr is dominated by row Rs. So delete row Rr from the pay off matrix. i.e., player A will never use the strategy corresponding to Rr because he will gain less for choosing such strategy. 3.Dominance need not be based on the superiority of pure strategies only. A given strategy can be dominated if it is inferior to an average of two or more other strategies. Pay off matrix is a profit matrix for player A and loss matrix for player B.

Arithmetic method

Find the difference of two nos in column I, and put it under the column II, neglect the negative sign it occurs Find the diff of two nos in column II,put it under the column I, neglect the negative sign Repeat the same for rows also. The values are called as oddments. These are the frequencies with which the players must use their courses of action in their optimum strategies