Chua Soon Jie

Keh Yan Shun

Lim Kok Siong

1081104073
1081103316
1101109878

Content
Introduction
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o
o
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What is Game Theory?

Assumptions
Classifications- number of players, types of games
Pure-strategy game

Example 1
Example 2
Real Case Problem
Reference
2

Game Theory and

Decision Analysis

What is Game Theory?

Game theory

Tool for decision under uncertainty

Player optimize his own decision at the expense of the other
player.
Game theory is the study of how optimal strategies are
formulated in the conflict.

ASSUMPTIONS
There are finite number of players.
There is conflicts of interests between them.
Players know all possible available choices but does
not know which one is going to be chosen
Players simultaneously select their respective
courses of action.
Their payoff is fixed and determine in advance.

CLASSIFICATION
Two-Person Game- A game with 2 players.
N-Person Game- A game with N number of player,
where n>2.
Zero-Sum Game- A game in which gains are equal
to sum of losses.
Non-Zero Sum Game- A game in which sum of
gains and losses is not equal.
Pure-Strategy Game- Each player plays one
strategy throughout the game.
Mixed-Strategy Game- Each player employ
different strategies at different times in the game.
6

Pay Off
It is the sum of gains and losses from the game that
are available to the players.
If in a game sum of the gains to one player is
exactly equal to the sum of losses to another player,
so that the sum of the gains and losses equals zero
then the game is said to be a zero-sum game.
There are also games in which the sum of the
players gains and losses does not equal to zero,
and these games are denoted as non-zero sum
games.

Two-person, Zero-sum
Game- Pure Strategy
Characteristics:
1. Two-players with finite set of strategies.
2. Losses of one player is the exact gain of the others
3. One strategy is repeatedly recommended to each
player
4. Bargaining is not allowed. There could be no
mutually advantageous agreement.

Solution of Pure Strategy

Games
Maximin Maximum in Row Minimum
Minimax Minimum in Column Maximum
A two-person sum game has a saddle point if and only if
Maximin = Minimax
Minimax is the decision rule to minimize the possible loss for
a worst case (maximum loss).
Maximin is the decision rule to minimize the opponent
maximum payoff and maximizing ones own minimum gain.

Method of solving 2-person

zero-sum games
Saddle point exists----- pure strategies
No saddle point ---- mixed strategies

10

Example 1:
Two Person Zero Sum Game With Single Saddle Point
Find optimal strategies for person A & person B and find
value of game

B1

B2

B3

B4

A1

-5

20

A2

A3

-2

-5

11

Step 1: Determine the row minimum

B1

B2

B3

B4

Row
Minimum

A1

-5

20

-5

A2

A3

-2

-5

-5

12

Step 2: Determine the column maximum

B1

B2

B3

B4

Row
Minimum

A1

-5

20

-5

A2

A3

-2

-5

-5

Column
Maximum

20

13

Step 3: Determine the Maximin and Minimax

B1

B2

B3

B4

Row
Minimum

A1

-5

20

-5

A2

A3

-2

-5

-5

Column
Maximum

20

maximin

minimax

Saddle point is at A2,B3 where the value is 4,

Where saddle point is the best strategy for both A and B

14

Example 2:
Two Person Zero Sum Game With Two Saddle Point
Find optimal strategies for person A & person B and
find value of game
B1

B2

B3

A1

-1

A2

A3

A4

15

Example 2:
Two Person Zero Sum Game With Two Saddle Point

Repeat step1 to step 3

B1

B2

B3

Row
Minimum

A1

-1

-1

A2

A3

A4

Column
Maximum

4
minimax

maximin

Since there are two Maximin and one Minimax, the game has 2 saddle points,
(A2,B2)&(A4,B2)
Thus, optimal strategy A is A2&A4 and for B is B2
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Real Case Problem

17

Given Data:
Company Strategies
Union
Strategies
C1

C2

C3

C4

U1

2.0

1.5

1.2

3.5

U2

2.5

1.4

0.8

1.0

U3

4.0

0.2

1.0

0.5

U4

-0.5

0.4

1.1

0.0

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Step 1 : Draw extra column and row

Company Strategies
Union
Strategies

C1

C2

C3

C4

U1

2.0

1.5

1.2

3.5

U2

2.5

1.4

0.8

1.0

U3

4.0

0.2

1.0

0.5

U4

-0.5

0.4

1.1

0.0

Row
Minimum

Column
maximum
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Step 2 : Identify minimum value of each row

Company Strategies

Union
Strategies

C1

C2

C3

C4

Row
Minimum

U1

2.0

1.5

1.2

3.5

1.2

U2

2.5

1.4

0.8

1.0

0.8

U3

4.0

0.2

1.0

0.5

0.2

U4

-0.5

0.4

1.1

0.0

-0.5

Column
maximum
20

Step 3 : Identify maximum value of each column

Company Strategies
Union
Strategies

C1

C2

C3

C4

Row
Minimum

U1

2.0

1.5

1.2

3.5

1.2

U2

2.5

1.4

0.8

1.0

0.8

U3

4.0

0.2

1.0

0.5

0.2

U4

-0.5

0.4

1.1

0.0

-0.5

Column
maximum

4.0

1.5

1.2

3.5
21

Step 4 : Find the Maximin

Company Strategies

Union
Strategies

C1

C2

C3

C4

Row
Minimum

U1

2.0

1.5

1.2

3.5

1.2
Maximin

U2

2.5

1.4

0.8

1.0

0.8

U3

4.0

0.2

1.0

0.5

0.2

U4

-0.5

0.4

1.1

0.0

-0.5

Column
maximum

4.0

1.5

1.2

3.5

22

Step 5 : Find the Minimax

Company Strategies

Union
Strategies

C1

C2

C3

C4

Row
Minimum

U1

2.0

1.5

1.2

3.5

1.2

U2

2.5

1.4

0.8

1.0

0.8

U3

4.0

0.2

1.0

0.5

0.2

U4

-0.5

0.4

1.1

0.0

-0.5

Column
maximum

4.0

1.5

1.2

3.5

Maximin

Minimax
23

Step 6 : Identify the saddle point

Company Strategies
Union
Strategies

C1

C2

C3

C4

Row
Minimum

Saddle point

U1

2.0

1.5

1.2

3.5

1.2

U2

2.5

1.4

0.8

1.0

0.8

U3

4.0

0.2

1.0

0.5

0.2

U4

-0.5

0.4

1.1

0.0

-0.5

Column
maximum

4.0

1.5

1.2

3.5

Minimax

Maximin

24

Company Strategies
Union
Strategies

C1

C2

C3

C4

Row
Minimum

Conclusion:
U1

2.0

1.5

1.2

3.5

1.2

U2

2.5

1.4

0.8

1.0

0.8

1. Saddle point has the value of 1.2.

2. Optimum solution for both the workers and

is U10.2
& C3 . 1.0
U3 company
4.0
0.5
0.2
3.
will gain 0.4
1.2 while1.1
company
1.2. (
U4 Union-0.5
0.0 will loss-0.5
Zero-sum )
Column
maximum

4.0

1.5

1.2

3.5

25

Limitation of Game Theory

Analysis will be more complex as the number of players
increase.
The assumption that players know their own pay-offs and payoffs of others is not practical.

26

References
https://www.youtube.com/watch?v=R7Sbc8s3FxA
http://www.egwald.ca/operationsresearch/gametheory.p
hp3
https://www.youtube.com/watch?v=PqK6dXPlr8&list=UU_zylrAtEs3Kd7ENktYQxMQ
http://www.princeton.edu/~rvdb/542/lectures/lec8.pdf
http://www.encyclopediaofmath.org/index.php/Twoperson_zero-sum_game

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