Games and Strategies

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 Introduction
• Game must be thought in a broad sense not as a kind of sport like

chess or bridge but competitive situation, a kind of conflict in which

one must win and the other must lose.

• Game Theory is a body of knowledge which is concerned with the

study of decision-making in situations where two or more rational

opponents are involved under conditions of competition and

conflicting interest.

• Business decisions in a competitive situation do not depend on the

decisions of the organization alone but on the interaction between

the decisions of the organization and those of the competitors. 2

• Each firm tries to select and execute its strategies and aims to

maximize its gains at the cost of its opponents. Similarly, a

competitor too rises to select the best of his strategies to counteract

his opponents again

• For example, candidates for an election, advertising and marketing

campaigns taken by competing business firms, countries involved

in military battles, etc. have their conflicting interests

• In a competitive situation, the courses of action (alternatives) for

each competitor may be either finite or infinite.

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• A competitive situation will be called a 'Game', if it has the
following properties:

• (i)There are a finite number of competitors (participants) called

players.

• (ii) Each player has a finite number of strategies (alternatives)

available to him.

• (iii) A play of the game takes place when each player employs his
strategy

• (iv) Every game results in an outcome, e.g., loss or gain or a draw,

usually called payoff, to some player.
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 TWO-PERSON ZERO-SUM GAMES

• When there are two competitors playing a game, it is called a 'two-

person game".
• In case the number of competitors exceeds two, say n, then the
game is termed as a ‘n-person game’.
• Games having the 'zero-sum‘ character, that the algebraic sum of
gains and losses of all the players is zero are called zero-sum
games.
• The play does not add a single paisa to the total wealth of all the
players; it merely results in a new distribution of initial money
among them.
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• Zero-sum games with two players are called two-person zero-sum
games.
• In this case the loss (gain) of one player is exactly equal to the gain
(loss) of the other.
• If the sum of gains or losses is not equal to zero, then the game is of
non-zero sum character or simply, a non-zero sum game.
• SOME BASIC TERMS
1. Player: The competitors in the game are known as players. A player
may be individual or group of individuals, or an organization.
2. Strategy: A strategy for a player is defined as a set of rules or
alternative courses of action available to him in advance, by which
player decides the course of action that he should adopt.
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• A strategy may be of two types:

• (a) Pure strategy: If the players select the same strategy each time,
then it is referred to as pure strategy. In this case, each player knows
exactly what the other player is going to do, the objective of the
players is to maximize gains or to minimize losses.

• (b) Mixed strategy: When the players use a combination of

strategies and each player always keep guessing as to which course
of action is to be selected by the other player at a particular occasion
then this is known as mixed strategy. Thus, there is a probabilistic
situation and objective of the player is to maximize expected gains
or to minimize expected losses.
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3. Optimum strategy: A course of action or play which puts the
player in the most preferred position, irrespective of the strategy
of his competitors, is called an optimum strategy.

4. Value of the game: It is the expected payoff of play when all the
players of the game follows their optimum strategies. The game
is called fair if the value of the game is zero and unfair, if it is
non-zero.

5. Payoff matrix: When the players select their particular strategies,

the payoffs (gains or losses) can be represented in the form of a
matrix called the payoff matrix. Since the game is zero-sum,
therefore gain of one player is equal to the loss of other and vice-
versa. 8
• In other words, one players payoff table would contain the same
amounts in payoff table of other player with the sign changed.
Thus, it is sufficient to construct payoff only for one of the
players.

• Let player A have m strategies A1, A2, .., Am and player B have n
strategies B1, B2, B3,…, Bn. Here it is assumed that each player
has his choices from amongst the pure strategies. Also it is assume
that player A is always the gainer and player B is always the loser.
That is, all payoffs are assumed in terms of player A.

• Let aij be the payoff which player A gains from player B if player
A chooses strategy Ai, and player B chooses strategy Bj.
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• Then the payoff matrix to player A is

• The payoff matrix to player B is (-aij).

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• Example : Consider a two-person coin tossing game. Each player tosses an
unbiased coin simultaneously. Player B pays Rs. 7 to A, if {H H}, occurs
and Rs. 4, if {T, T} occurs; otherwise player A pays Rs. 3 to B. This two-
person game is a zero-sum game, since the winnings of one player are the
losses for the other. Each player has his choices from amongst two pure
strategies H and T if we agree conventionally to express the outcome of
the game in terms of the payoffs to one player only, say A, then the above
information yields the following payoff matrix in terms of the payoffs in
the player A. Clearly, the entries in B's payoff matrix will be just the
negative of the corresponding entries in A's payoff matrix so that the sum
of payoff matrices for player A and player B is ultimate a null matrix. We
generally display the payoff matrix of that players who is indicated on the
left side of the matrix. For example, A's payoff matrix may be displayed as
below :
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• THE MAXIMIN-MINIMAX PRINCIPLE

• We shall now explain the so-called Maximin-Minimax Principle

for the selection of the strategies by the two players.

• For player A, minimum value in each row represents the least gain
(payoff) to him if he chooses his particular strategy. These are
written in the matrix by row minima. He will then select the
strategy that maximizes his minimum gains. This choice of player
A is called the maximum principle, and the corresponding gain is
called the maximin value of the game.

• For player B, on the other hand, likes to minimize his losses. The
maximum value in each column represents the maximum loss to
him if he chooses his particular strategy. 12
• These are written in the matrix by column maxima. He will then select
the strategy that minimizes his maximum losses. This choice of player B
is called the minimax principle, and the corresponding loss is the
minimax value of the game.
• If the maximin value equals the minimax value, then the game is said to
have a saddle (equilibrium) point and the corresponding strategies are
called optimum strategies. The amount of payoff at an equilibrium point
is known as the value of the game.
• Saddle point:
• A saddle point of a pay-off matrix is that position in the pay off matrix
where maximum of row minima coincides with the minimum of the
column maxima. The pay-off at the saddle point is called the value of
the game denoted by v. 13
• The saddle point need not be unique.

• We shall denote the maximin value of the game by v and the

minimax value of the game by v.

• A game is said to be fair if v = 0 = v.

• A game is said to strictly determinable if v = v = v.

• Mixed strategy:

• When maximin ≠ minimax, then pure strategy fails. Therefore,

each player with certain probabilistic fixation. This type of
strategy is called mixed strategy.

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• Rule for determining a Saddle Point:

• We may now summarize the procedure of locating the saddle

point of a payoff matrix as follows:

• Step-1 : Select the minimum element of each row of the payoff

matrix and mark them [*].

• Step-2 : Select the greatest element of each column of the payoff

matrix and mark them [+].

• Step-3 : If there appears an element in the payoff matrix marked

[*] and [+] both, the position of that element is a saddle point of
the payoff matrix.

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 Problems
1. Solve the game whose payoff matrix is given by
Player B
B 1 B2 B3
A1 1 3 1 
Player A : A2 0 4 3
A3 1 5 1
Solution:
B1 B2 B3 Row minima Maximin( v)


A1  1*† 3 1*†  1 
  
A2  0 4* 3  4  1
A3  1† 5† 1*  1 

Column maxima 1 5 1



Minimax(v ) 1
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• Here maximin = minimax = 1

• The problem is said to have a saddle point S0 = (A1, B1) (or)

(A1, B3)

• The value of the game is v =1

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2. Determine which of the following two-person zero-sum games
are strictly determinable and fair. Give optimum strategies for
each player in the case of strictly determinable games:

Solution. (a) The payoff matrix for player A is

Thus obviously, we have v = 2 and v = 0

Since they are not equal, the game is not strictly determinable. It
does not have any saddle point as well as not fair.
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(b) The payoff matrix for player B is

0*+ 2* 0
-1* 4+ -1
0 4

Thus , we have v = v = v = 0, the game is fair.

Since they are equal, the game is strictly determinable.

Optimum strategies for players A and B are given by S0 = (A1,

B1)

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3. Determine the range of value of p and q that will make the
payoff element a22, a saddle point for the game whose payoff
matrix is given by Player B
B1 B2 B3
A1  2 4 7 
Player A : A2 10 7 q 
A3  4 p 8 

Solution:

Let us first ignore about the values of p and q, and determine the
maximin and minimax values of the payoff matrix.

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 B1 B2 B3 Row minima Maximin( v)


A1  2* 4 7 2 
  
A2 10* 7*† q  7  7
A3  4* p 8†  
4 
Column maxima 10 7 8


Minimax(v ) 7

• Here maximin = minimax = 7

• The problem is said to have a saddle point S0 at (A2, B2), this

imposes the condition on p as  7and q as ≥ 7

• Hence, the required range of values of p and q are 7  q, p  7.

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 Practice problems
1. Solve the game whose payoff matrix is given by
Player B
B1 B2
A1 9 2
Player A : A2 8 6 
A3 6 4
B1 B2
A1  2 6 
2. Consider the game G with the following payoff matrix 
A2  2  
(i) Show that G is strictly determinable, whatever μ may be.

(ii) Determine the value of G.

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3. For what values of λ, the game with following payoff matrix
is strictly determinable
  6 2
 1  7 
 
 2 4  

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