Scribd
Upload
16 views4 pages

Game Theort

Uploaded by

eleazarmontes09
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
16 views4 pages

Game Theort

Uploaded by

eleazarmontes09
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
You are on page 1/ 4

1.

HISTORY

In Game theory came in to existence in 20th Century.

In 1944 John Von Neumann and Oscar Morgenstern published a book


Theory of game and Economic Behavior which they discussed how
businesses of all types may use this technique to determine the best
strategies given a competitive business environment

2. DEFINITION OF GAME THEORY

In business and economics literature, the term 'game' refers to a situation


of conflict and competition in which two or more competitor (or
participant) are involved in the decision making process in anticipation of
certain outcome over a period of time.

3. BASIC TERM USED IN GAME THOERY

3.1 PLAYER

The competitor is referred to as player A player may be individual, a group


of individual, or an organization.

3.2 TWO-PERSON GAME/N-PERSON GAME

If a game involves only two players (competitors), then it is called a two-


person game.

• If numbers of player are more than two, then game is referred to as n-


person game.

3.3 ZERO SUM GAME/NON-ZERO SUM GAME

In a game, if sum of the gain to one player is exactly equal to the sum of
losses to another player, so that the sum of the gains and losses equals to
zero, then the game is said to be a zero-sum game. Otherwise it is said to
be non zero-sum game.

3.4 STRATEGY

The strategy for a player is the list of all possible actions (moves or
courses of action) that he will take for every payoff (outcome) that might
arise.
3.4.1 PURE STRATEGY

• A player always chooses the same strategy-same row or column.

3.4.2 MIXED STRATEGY

• A player chooses the strategy with some fix probabilities.

• A player changes the choice of row or column with different plays or


turns.

3.4.3 OPTIMAL STRATEGY

The particular strategy by which a player optimizes his gains or losses


without knowing the competitors strategies is called optimal strategy.

3.5 PAYOFF MATRIX

The payoff (a quantitative measure of satisfaction that a player gets at the


end of the play) in terms of gains and losses, when player select their
particular strategies, can be represented in the form of a matrix, called
the payoff matrix.

In this pay-off matrix, positive pay-off is the gain to maximizing player (X)
and loss to minimizing player (Y). E.g., if X chooses strategy X_{2} and Y
chooses strategy Y1, then X's gain is 32 and Y's loss is 32.

4. ASSUMPTIONS OF THE GAME

1. There are finite numbers of competitors.

2. There is conflict of interests between them.

3. Each player has available with him finite number of possible strategies
(courses of action). The list may not be the same for each player.
4. One player attempts to maximize gains and the other attempts to
minimize losses.

5. Players know all possible available choices but do not know which one
is going to be chosen.

6. Players simultaneously select their respective courses of action.

7. The payoff is fixed and determined in advance.

8. Players have to make individual decisions without direct


communication.

6. RULES FOR GAME THEORY

RULE 1: Look for pure Strategy (Saddle point)

RULE 2: Reduce game by Dominance

If no pure strategies exist, the next step is to eliminate certain strategies


(row/column) by law of Dominance.

RULE 3: Solve for mixed Strategy

A mixed strategy game can be solved by different solution method, such


as

1. Algebraic Method

2. Arithmetic Method

3. Matrix Method

4. Graphical method

5. Linear Programming Method

7. PURE STRATEGIES (MINIMAX AND MAXIMIN PRINCIPLE)

(1) Maximin principle:

Maximize the player's minimum gains. That means select the strategy
that gives the maximum gains among the row minimum value.

(2) Minimax Principle:

Minimize the player's maximum gains. That means, select the strategy
that gives the minimum loss among the column maximum values.
(3) Saddle Point:

If the maximin value equals the minimax value, the game is said to have a
saddle (equilibrium) point and the corresponding strategies are called
"Optimal Strategies".

(4) Value of game:

This is the expected payoff at the end of the game, when each player uses
his optimal strategy.

8. RULE TO FINDOUT SADDLE POINT

➤ Select the minimum (lowest) element in each row of the payoff matrix
and write them under 'Row Minimum' heading. Then, select the largest
element among these element and enclose it in a rectangle [].

➤ Select the maximum (largest) element in each column of the pay off
matrix and write them under 'Column Maximum' heading. Then, select the
lowest element among these elements and enclose it in a circle ().

➤ Find out the element(s) that is same in the circle as the well as
rectangle and mark the position of such element(s) in the matrix. This
element represents the value of the game and is called the Saddle (or
equilibrium) point.

You might also like