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EMG181 SW GAME THEORY 4TH Quarter SY 2011-2012 1) The game shown below give As payoff.

. Determine the value of x and y that will make entry (2,2) of the game a saddle point. Answer: B1 1 x B2 y 5 B3 6 10 Row Minimum Y<=5 so that row minimum is 1 x>=5 so that row minimum is 5 (Max) 2

A1 A2

A3 Column Maximum

6 x>=5 so that the column maximum is x>=5

2 Y<=5 so that the column maximum is 5 (Min)

3 10

Therefore, x >= 5, y <= 5 . Value of the game = 5 which is at (2,2). 2) Two companies promote two competing products. Each product currently controls 50% of the market. Because of recent improvements in the two products, each company is preparing to launch an advertisement campaign. If neither company advertises equal market share will continue. If either company launches a stronger campaign, the other is certain to lose a proportional percentage of its customers. A survey of the market shows that 55% of potential customers can be reached through television, 35% through newspapers and 10% through radio. a) Formulate the problem as a two-person zero-sum game, and select the appropriate advertisement media for each of the two companies. b) Determine a range for the value of the game. Can each company operate with a single pure strategy? Answer: a) Define the following strategies: Strategy 1 2 3 4 5 6 7 8 Description Do nothing Use TV Use Radio Use Newspaper Use TV and Radio Use TV and Newspaper Use Radio and Newspaper Use TV, Radio and Newspaper

The payoff is the additional percentage of customers reached by company A. Strategy 1 Share 1 0% 2 55% 3 35% 4 10% 5 90% 6 65% 7 45% 8 100% Column Maximum 0% 0 55 35 10 90 65 45 100 100 2 55% -55 0 -20 -45 35 10 -10 45 35 3 35% -35 20 0 -25 55 30 10 65 65 4 10% -10 45 25 0 80 55 35 90 90 Company B 5 6 90% -90 -35 -55 -80 0 -25 -45 10 10 65% -65 -10 -30 -55 25 0 -20 35 35

7 45% -45 10 -10 -35 45 20 0 55 55

8 100% -100 -45 -65 -90 -10 -35 -55 0 0 (Min)

Row Minimum -100 -45 -65 -90 -10 -35 -55 0 (Max)

Company A

b) The game has a saddle point at (8,8). This means that both companies venture into using all three media. The value of the game is zero (fair game).

3) Below is a two-person, zero-sum game based on Player As payoff: Strategy Player A A1 A2 A3 A4 B1 1 2 -3 -7 B2 9 9 -4 -4 Player B B3 6 8 10 -6 B4 0 4 -3 -5

a) Specify the range for the value of the game. b) Formulate the game by linear programming. c) Solve the game graphically. Determine the optimal strategy and value of the game. Who wins the game? Answer: Strategy B1 Player A A1 A2 A3 A4 Column Maximum 1 2 -3 -7 2 (Min) B2 9 9 -4 -4 9 Player B B3 6 8 10 -6 10

B4 0 4 -3 -5 4

Row Minimum 0 2 (Max) -4 -7

a) V = 2 b) LP Formulation: Player As Linear Program: Maximize z = V Subject to: V - p1 - 2p2 + 3p3 + 7p4 <= 0 V - 9p1 - 9p2 + 4p3 + 4p4 <= 0 V - 6p1 - 8p2 - 10p3 + 6p4 <= 0 V - 4p2 + 3p3 + 5p4 <= 0 p1 + p2 + p3 + p4 = 1 p1, p2, p3, p4 >= 0 V unrestricted Player Bs Linear Program: Minimize z = V Subject to: V - q1 - 9q2 - 6q3 >= 0 V - 2q1 - 9q2 - 8q3 - 4q4 >= 0 V + 3q1 + 4q2 - 10q3 + 3q4 >= 0 V + 7q1 + 4q2 + 6q3 + 5q4 >= 0 q1 + q2 + q3 + q4 = 1 q1, q2, q3, q4 >= 0 V unrestricted c) Optimal Strategy: Player A plays A2 while player B plays B1. Value of the Game, V = 2 Player A wins the game. Since the game used pure strategy, no need to solve graphically. NOTE: THERE WAS A TYPOGRAPHICAL ERROR IN THE DATA: Entry (2,2) should be -2. So the game matrix should be , Strategy B1 Player A A1 A2 A3 A4 Column Maximum 1 -2 -3 -7 1 (Min) B2 9 9 -4 -4 9 Player B B3 6 8 10 -6 10

B4 0 4 -3 -5 4

Row Minimum 0 (Max) -2 -4 -7

a) 0 <= V <= 1 (Mixed Strategy) b) LP Formulation: Player As Linear Program: Maximize z = V Subject to: V - p1 + 2p2 + 3p3 + 7p4 <= 0 V - 9p1 - 9p2 + 4p3 + 4p4 <= 0 V - 6p1 - 8p2 - 10p3 + 6p4 <= 0 V - 4p2 + 3p3 + 5p4 <= 0 p1 + p2 + p3 + p4 = 1 p1, p2, p3, p4 >= 0 V unrestricted Player Bs Linear Program: Minimize z = V Subject to: V - q1 - 9q2 - 6q3 >= 0 V + 2q1 - 9q2 - 8q3 - 4q4 >= 0 V + 3q1 + 4q2 - 10q3 + 3q4 >= 0 V + 7q1 + 4q2 + 6q3 + 5q4 >= 0 q1 + q2 + q3 + q4 = 1 q1, q2, q3, q4 >= 0 V unrestricted c) Graphical Solution: Dominance: Strategy Player A A1 A2 A3 A4 B1 1 -2 -3 -7 B2 9 9 -4 -4 Player B B3 6 8 10 -6 B4 0 4 -3 -5

A4 dominated by A1 B3 dominated by B1 A3 dominated by A1 B2 dominated by B1 and B4 Probability P 1p Strategy A1 A2 Player B B1 1 -2 B4 0 4

Player A

Player A: Bs Choices B1 B4 As Expected Payoff p - 2(1 p) = p 2 + 2p = 3p - 2 0p + 4(1 - p) = 4 - 4p

V 6 5 6 5

4 3 2 1 0 p=0 -1 -2 p=?

4 3 2 1 0 p=1

VB1 = VB4 3p 2 = 4 - 4p 7p = 6 p = 6/7 1 p = 1/7 Optimal Strategy: Player A will play A1 6/7 of the time; A2 1/7 of the time;

A3 0 of the time; A4 0 of the time. Value of the game is: V = 3(6/7) 2 = 4/7 Player A wins the game. Player B: Player B Player A Strategy A1 A2 q B1 1 -2 1-q B4 0 4

As Choices A1 A2

Bs Expected Payoff q + 0(1 q) = q -2p + 4(1 - q) = -2q + 4 - 4q = -6q + 4 VA1 = VA4 q = -6q + 4 7q = 4 q = 4/7 1 - q = 1 - 4/7 = 3/7

Optimal Decision: Player B will play B1 4/7 of the time; B2 0 of the time; B3 0 of the time; B4 3/7 of the time. Value of the game is: V = q = 4/7 Player A wins the game.