Game Theory
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Lee Lhouine Kaidz II LirazanGame Theory
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Lee Lhouine Kaidz II LirazanOperationsResearch2 Module
Let’s play game!
Preview of lecture
• Overview of game theory
• Classic examples of game theory
• History of game theory
• Classification of game theory
• Key elements in game theory
• Mathematical concept in Game Theory
• Procedure to solve 2x2 game without saddle point
• Algebraic Method for solving games without saddle
point
Overview of Game Theory
❑ Game theory is an approach to modelling behavior in situations where the
outcome of your decisions depends on the decisions of others.
❑ 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
interdependent.
Overview of Game Theory
❑ Game theory is an approach to modelling behavior in situations where the
outcome of your decisions depends on the decisions of others.
❑ 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
interdependent.
Classic examples of game theory
(i) The Prisoner’s Dilemma; where two suspects are in police custody as
accomplices for the same crime, but there is not enough evidence for a
felony conviction. They are held and interrogated separately. If one prisoner
testifies against the other while the other stays silent, the testifying prisoner
goes free and the silent prisoner is convicted and serves ten years. If both
prisoners stay silent, both are convicted on a minor charge and serve six
years. If both prisoners testify against each other, each serves five years.
(ii) In your everyday life: Everything is a game, poker, chess, soccer, driving,
dating, and more..
History of game theory
The individual closely associated with the creation of the theory of
games is John von Neumann, one of the greatest mathematicians of
this century. Although others proceeded him in formulating a theory of
games - notably Emile Borel - it was von Neumann who published in
1928 the paper that laid the foundation for the theory of two-person
zero-sum games.
Classification of game theory
(1) Classical game theory
It focuses on optimal play in situations where one or more people must
make a decision and the impact of that decision and the decisions of
those involved is known.
(2) Combinatorial game theory
It focuses on optimal play in two-player games in which each player
takes turns changing in pre-defined ways.
(3)Dynamic game theory:
It focuses on the analysis of games in which players must make
decisions over time and in which those decisions will affect the
outcome at the next moment in time.
Key elements in game theory
Player: who is interacting
Strategies: what are the options of each player? In what order do
players act?
Payoffs: How do strategies translate into outcomes? What are players’
preferences over possible outcomes?
Information/Beliefs: What do players know/believe about the situation
and about one another? What actions do they observe before making
decisions?
Rationality: How do players think?
Mathematical concept in Game Theory
1. Sum of gains and loss: If in a game sum of the gains to one player
is exactly equal to the sum of losses to another player, so that sum
of the gains and losses equal zero, the corresponding game is said
to be zero sum game.
2. Types of games: one-person, two-person, or n-person (with n
greater than two) game
Mathematical concept in Game Theory
Two person zero sum game (with two players): The game in which
there are exactly two player and the interest of the players completely
opposed are referred as two-person zero sum games.
Two person zero sum game (with more than two players):
Mathematical concept in Game Theory
Pay off: The outcome of the game resulting from a particular decision
(or strategy) is called pay off . It is assumed that pay off is also known
to the player in advance.
Pay off matrix:
Types of Strategy
(i) Pure strategy: Particular course of action that are selected by
player is called pure strategy (course of action).
(ii) Mixed strategy: Course of action that are to be selected on a
particular occasion with some fixed probability are called mixed
strategies.
Minmax-Maxmin principle
The selection of an optimal strategy by each player without the
knowledge of the competitor's strategy is the basic problem of playing
games.
Saddle point
If the minmax value = maxmin value, then the game is said to have a
saddle (equilibrium) point
Minmax-Maxmin principle
Example:-01 (Games with sadle point)
Example:-02
Procedure to solve 2x2 game without saddle point
Example:-01
Two player A and B match coins. If the coins match, then A wins two
units of value, if the coin do not match, then B win 2 units of value.
Determine the optimum strategies for the players and the value of the
game
Example:-02
Consider a modified form of " matching biased coins" game problem.
The matching player is paid ₱8.00 if the two coins turn both heads and
₱1.00 if the coins turn both tails. The non-matching player is paid
₱3.00 when the two coins do not match. Given the choice of being the
matching or non-matching player, which one would you choose and
what would be your strategy?
Algebraic Method for solving games without saddle
point
Let p1,p2,.....pm be the probability that the player A choose his strategy A1,
A2,...Am respectively. where p1+p2+....+pm=1
Let q1,q2,.....qn be the probability that the player B choose his strategy B1,
B2,...Bn respectively. where q1+q2+.....+qn =1
Example:-01
Two player A and B match coins. If the coins match, then A wins two
units of value, if the coin do not match, then B win 2 units of value.
Determine the optimum strategies for the players and the value of the
game
YOUR TURN
