Section 3.

4 Review

1) Player I holds a black ace and a red 8. Player II holds a red 2 and a black 7.
The players simultaneously choose a card to play. If the chosen cards are of
the same color, Player I wins. Player II wins if the cards are of different
colors. The amount won is a number of dollars equal to the number on the
winners card (ace counts as 1.). Set up the payoff function for this game.

2) Using the answer from problem 1, find the optimal mixed strategies for
players I and II and the value of the game.

3) Given this game, reduce by reduction to a game with a 2 X 2 payoff matrix,

then find the optimal mixed strategies for each player and the value of the
game.

B1 B2 B3
A1 55 40 35

A A2 70 70 55
A3 75 55 65

4) Reduce this payoff matrix by dominance.

a b c
A 2 4 9

B 1 1 0
A
C 1 2 3

D 1 1 1

5) Using the payoff matrix in problem 4 determine if this game is strictly

determined. State each players optimal pure strategy.

6) Given the payoff matrix below and the mixed strategies of both players find
the expected value.

R = [0.2 0.2 0.6], C = [0.5 0 0.5 0]T.

7) You have $50,000 to invest in stocks and bonds. Your financial advisor has
informed you that the annual return on your investment depends on the state
of the economy. In an expanding economy, the investment in stocks will
increase by 15% and the investment in bonds will increase by 8%. In economic
recession, the investment in stocks will decrease by 3% and the investment in
bonds will increase by 10%.

(a) Write the payoff matrix for this game.

(b) What is your optimal investment strategy?

(c) What profit can you expect by using your optimal investment strategy?