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Game Theory (CBCS)
Game Theory (CBCS)
• A game is a contest that involves two or more players, that is, decision makers, each
of whom wants to win. The outcome of the game depends on what actions are taken
by each of the players.
• For example: Parlor games like poker, chess, tic-tac-toe required strategies to win the
game. Similarly for military battles, political campaigns, advertising and marketing
campaigns by competing business firms, etc. require strategical work.
• On the other hand, games like roulette and ludo are played against certain odds.
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• Game theory is a mathematical theory that deals with the general features of compet-
itive situations like examples mentioned in second point. (In such games we are fully
aware of our choices and winning/losing a game depends on the choice of opponents
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• It deals with situations where two or more intelligent and rational opponents are
involved in decision making under conditions of competition and conflicting interests
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and in which the outcome is determined by the ‘best’ strategies chosen by each of
them.
Definition 1 A game in which only two players are involved is referred to as a two-
person game. Similalry, if the number of players is n, where n > 2, then the game is
called an n-person game.
2
Definition 2 A two-person game in which any loss to one player is the gain of the
other is called a two-person zero-sum game.
■ Example 1 There are two players A and B and they are playing a game of betting such
that if heads comes up then B will give $1 to A and if tails comes up, then A will give $1
to B.
So basically, a game in which one player wins whatever the other player loses, so that
the sum of their net winnings is zero is called two-person zero-sum game.
Or in other words, the sum of gains and losses is equal to zero. For example, if player
A wins in the above example, then gain for player A is +1 and loss for player B is −1, so
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that (+1) + (−1) = 0.
Definition 3 The term strategy means a rule of action or set of instructions that tells a
player what to do under all possible circumstances.
■
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Example 2 — Game of Heads and Tails. The game involves two players, say
player A and player B. The game consists simply of each player simultaneously showing
either a head or a tail of a coin. If the face of a coin matches, that is, if both shows head
or if both shows tail, then the player A wins the bet of $1. If the face of a coin does not
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match, then player B wins the bet of $1.
Thus each player has two strategies: to show either a head or a tail.
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Clearly, this is a two-person zero-sum game because one player’s gain is the other’s
loss.
The above data can be represented using payoff table to player A is as shown below:
A
Player B
H T
H 1 −1
Player A
T −1 1
OR
3
1 −1
The 2 × 2 matrix is called as payoff matrix.
−1 1
Positive entries indicate a gain for the player A, while negative entries indicate a loss for
the player A.
The payoff matrix shows the gain (positive/negative) for player A that would result
from each combination of strategies for the two players.
Note: Payoff matrix is given only for player A because the table for player B is just
the negative of the player A. So we define a payoff matrix for only one player.
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Player A
H T
Player B
H
T
N −1
1
1
−1
Before the game begins, each player knows the strategies she/he has available, the ones
the opponent has available and the payoff matrix. The actual play of the game consists of
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each player simultaneously choosing a strategy without knowing the opponent’s choice.
Types of Strategies:
(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 opponent is going to
do and the objective of the players is to maximize gains or to minimize losses.
(b) Mixed Strategy: In mixed strategy players use a combination of strategies and each
player always keeps on guessing as to which course of action is to be selected by
the other player at a particular occasion. 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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Definition 4 A strategy which when adopted puts the player in the most preferred
position, irrespective of the strategy of his competitors, is called an optimal strategy.
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−2 −1 7
3 0 3
6 −1 −3
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Assuming that each player wishes to minimize his maximum losses, determine the optimal
strategy for each player and the corresponding value of the game.
Solution Let s1 , s2 and s3 be the three strategies that player A can play while t1 , t2 and t3
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be the three strategies that player B can play.
Player B
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t1 t2 t3
s1 −2 −1 7
Player A s2 3 0 3
A
s3 6 −1 −3
Note that neither player can take advantage of the opponent’s strategy to improve
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his/her own position. For example, when player B predicts that player A is using strategy
s2 , player B would incur a loss instead of gain if he were to change from his original plan
of using his startegy t2 . Similarly, Player A would only worsen his position if he were
to change his plan. Thus, neither player has any motive to consider changing strategies,
either to take advantage of his opponent or to prevent the opponent from taking advantage
of him.
Therefore, the optimal strategy for player A is to choose s2 , whereas the optimal
strategy for player B is to choose t2 .
Player B
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t1 t2 t3
s1 −2 −1 7
Player A s2 3 ⃝
0 3
s3
N 6 −1
In other words, the value of game is the maximum guaranteed gain to the maximizing
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In the above example, note that 0 is simultaneously the minimum in its row and
the maximum in its column, that means, there is an entry in the payoff matrix that is
simultaneously the minimum entry in its row and the maximum entry in its column.
This means the game is strictly determined. That entry a22 = 0 is called as the saddle
point.
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Definition 7 A two-person zero-sum game that has an entry in the payoff matrix that
is simultaneously the minimum entry in its row and the maximum entry in its column is
called as a strictly determined game.
Definition 8 The saddle point in a payoff matrix is one which is the minimum value
in its row and the maximum value in its column.
In a strictly determined game, the optimal strategy for the row player is the row
containing the saddle point and the optimal strategy for the column player is the
column containing the saddle point.
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Remark A game may have more than one saddle point. In that case, each player may
have more than one optimal strategy. There may or may not be the saddle point in the
game. The value of the game remains unchanged.
Since the game is zero-sum game, therefore at the end of the game, there will be some
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profit for one player and loss for the other player.
Since both of the player know that the other one is an intelligent person, so the objective
function will be:
Therefore A’s strategy is called as MaxiMin strategy and B’s strategy is called as MiniMax
strategy.
Maximin Criterion: Select the minimum payoff in each row and then select the
maximum value from them. That value is called as maximin value. The row
corresponding to this maximin value constitutes the optimal strategy for the row
player.
Minimax Criterion: Select the maximum payoff in each column and then select
the minimum value from them. That value is called as minimax value. The column
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corresponding to this minimax value constitutes the optimal strategy for the column
player.
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Maximin Value = Minimax Value
then the game is pure strategy game and that value is the saddle point.
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■ Example 4 For the game with the following payoff matrix, determine the maximin and
minimax strategies for each player.
4 3 2
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1 −2 3
6 4 1
A
Solution
Player B
1 2 3 Row Minima
1 4 3 2 ⃝
2
Player A 2 1 −2 3 −2
3 6 4 1 1
Column Maxima 6 4 ⃝
3
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Therefore the maximin strategy for the row player is to play row 1, where the minimax
strategy for the column player is to play column 3.
Assuming that each player wishes to minimize his maximum losses, determine the best
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strategy for each player and the saddle point of the game.
Solution
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t1
Player B
t2 t3 Row Minima
s1 −2 −1 7 −2
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Player A s2 3 ⃝
0 3 ⃝
0 ← Maximin
s3 6 −1 −3 −3
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Column Maxima 6 ⃝
0 3
Minimax
A
Since Minimax value = Maximin value = 0, therefore the saddle point is a22 = 0. Also,
A’s strategy is to play s2 while B’s strategy is to play t2 .
Show that the game is strictly determined and find the saddle point(s) for the game.
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Solution
Player B
t1 t2 Row Minima
s1 9 ⃝
5 ⃝
5 ← Maximin
Player A
s2 −11 3 −11
Column Maxima 9 ⃝
5
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Minimax
Since 5 is simultaneously the minimum entry in its row and the maximum entry in its
column, therefore the game is strictly determined. Also Minimax value = Maximin value
is to play t2 .
■
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= 5, therefore the saddle point is a12 = 5. Also, A’s strategy is to play s1 while B’s strategy
Example 7 For the game with the following payoff matrix, determine the maximin and
minimax strategies for each player.
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4 3 2
1 −2 3
di
6 4 1
A
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Solution
Player B
t1 t2 t3 Row Minima
s1 4 3 2 ⃝
2 ← Maximin
Player A s2 3 −2 3 −2
s3 6 4 1 1
Column Maxima 6 4 ⃝
3
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↑
Minimax
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Note that 2 is minimum in the row but not the maximum in the column. Similarly, 3 is
maximum in the column but not minimum in the row. So, no saddle point exists.
Infact, Minimax value ̸= Maximin value, therefore the given payoff matrix has no
saddle point.
Using Maximin and Minimax Criterion, A’s strategy is to play s1 while B’s strategy is
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to play t3 .
■ Example 8 A two-person, zero-sum game is defined by the following payoff matrix:
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5 0 −3
3 1 2
−4 −2 6
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(a) Show that the game is strictly determined and find the saddle point(s) for the game.
Solution
Player B
t1 t2 t3 Row Minima
s1 5 0 −3 −3
Player A s2 3 ⃝
1 2 ⃝
1 ← Maximin
s3 −4 −2 6 −4
Column Maxima 5 ⃝
1 6
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↑
Minimax
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(a) Since 1 is simultaneously the minimum entry in its row and the maximum entry in its
column, therefore the game is strictly determined. Also Minimax value = Maximin
value = 1 and a22 = 1 is saddle point.
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(b) A’s strategy is to play s2 while B’s strategy is to play t2 .
2 4 2
0 3 0
−1 −2 1
(a) Show that the game is strictly determined and find the saddle point(s) for the game.
Solution
Player B
t1 t2 t3 Row Minima
s1 ⃝
2 4 ⃝
2 ⃝
2 ← Maximin
Player A s2 0 3 0 0
s3 −1 −2 1 −2
Column Maxima ⃝
2 4 ⃝
2
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↑ ↑
Minimax Minimax
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(a) Since 2 is simultaneously the minimum entry in its row and the maximum entry in its
column, therefore the game is strictly determined. Also Minimax value = Maximin
value = 2 and we have two saddle points, a11 = 2 and a13 = 2.
(b) A’s strategy is either to play s1 while B’s strategy is to play either t1 or t3 .
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(c) Since saddle point = 2 ̸= 0, therefore it is not fair game.
■ Example 10 — Do Yourself. For the following payoff matrix for player A, determine
the optimal strategies for both the players and the saddle point of the game (using maximin-
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minimax principle):
3 −1 4 6 7
−1 8 2 4 12
A
16 8 6 14 12
1 11 −4 2 1
Solution 6, s3 and t3
Remark In a two-person zero sum game, let v be the value of the game. Also, let v1 be
the maximin value and v2 be the minimax value. Then
• v1 ≤ v2 .
For example:
Player B
t1 t2 t3 Row Minima
s1 4 3 2 ⃝
2
Player A s2 1 −2 3 −2
s3 6 4 1 1
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Column Maxima 6 4 ⃝
3
(2) Here v1 = v2 = 0.
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t1
Player B
t2 t3 Row Minima
s1 −2 −1 7 −2
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Player A s2 3 ⃝
0 3 ⃝
0
s3 6 −1 −3 −3
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Column Maxima 6 ⃝
0 3
(3) Here v1 = v2 = v = 5.
A
Player B
t1 t2 Row Minima
s1 9 ⃝
5 ⃝
5
Player A
s2 −11 3 −11
Column Maxima 9 ⃝
5
Definition 10 (a) When saddle point exists for a payoff matrix, then the solution is
called as stable solution (or equilibrium solution). In this case, both the players
have a single optimal strategy.
(b) When saddle point does not exists, then the solution is called as unstable solution.
In this case, neither player knows in advance which of his own strategies will be
used.
Definition 11 If players use a combination of strategies and each player always keeps
on guessing as to which course of action is to be selected by the other player at a
particular occasion, then that game is called as mixed strategy game.
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OR
If a game does not possess a saddle point, it is called a mixed strategy game. In other
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words, a mixed strategy game is a game in which the maximin value is not equal to the
minimax value.
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For example:
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Player B
t1 t2 t3 Row Minima
A
s1 4 3 2 ⃝
2 ← Maximin
Player A s2 3 −2 3 −2
s3 6 4 1 1
Column Maxima 6 4 ⃝
3
Minimax
Thus each player has two strategies: to show either a head or a tail.
Also, this is a two-person zero-sum game because one player’s gain is the other’s loss.
Player B
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H T
H 1 −1
Player A
TN −1 1
Player B
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H T Row Minima
H 1 −1 −1
Player A
T −1 1 ⃝
−1
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Column Maxima ⃝
1 1
Clearly, this game has no saddle point. Therefore it is a mixed strategy game. Neither
A
2 −4
−3 4
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Solution
Player B
t1 t2 Row Minima
s1 2 −4 −4
Player A
s2 −3 4 ⃝
−3
Column Maxima ⃝
2 4
This shows that the game has no saddle point. Hence it’s a mixed strategy game.
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So both the players will be choosing one strategy for some time and the other strategy
for the rest of the time.
Let
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p1 = Number of proportions (or, probability) that A plays s1 strategy
p2 = Number of proportions (or, probability) that A plays s2 strategy
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q1 = Number of proportions (or, probability) that B plays t1 strategy
q2 = Number of proportions (or, probability) that B plays t2 strategy
Player B
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t1 (q1 ) t2 (q2 )
s1 (p1 ) 2 −4
Player A
A
s2 (p2 ) −3 4
Therefore in mixed strategy games, we will find the number of proportions p1 and p2
such that A will maximize the minimum profit and the number of proportions q1 and q2
such that B will minimize the maximum loss.
Player A:
2p1 − 3p2
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−4p1 + 4p2
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p1 + p2 = 1 (because p1 and p2 are probabilities)
Therefore
7
6
=⇒
13
6
p2 = 1
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p2 + p2 = 1 (using (1))
6
=⇒ p2 = = 0.46
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13
6 7
and p1 = 1 − p2 = 1 − = = 0.54
13 13
That is, player A must play the strategy s1 for 54% of the time and s2 for 46% of the time
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Player B:
2q1 − 4q2
−3q1 + 4q2
18
Therefore
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8
q2 + q2 = 1 (using (2))
5
13
=⇒ q2 = 1
5
=⇒ q2 =
5
13
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= 0.38
and q1 = 1 − q2 = 1 −
5
=
13 13
8
= 0.62
That is, player B must play the strategy t1 for 62% of the time and s2 for 38% of the time
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and the expected payoff for player B is:
8 5 4
2q1 − 4q2 = 2 −4 =−
13 13 13
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That is,
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Value of the game = −
13
7 6
A
The mixed strategy for player A is , and the mixed strategy for player B is
13 13
8 5
, .
13 13
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TRICK
First find the absolute difference for each row and column:
t1 t2
7
s1 2 −4 6 13
6
s2 −3 4 7 13
5 8 13
az
8 5
13 13
Therefore
7 6 8 5
and
p1 =
13
, p2 =
13 N
,
7
13
,
−3·
q2 =
6
13
=−
4
13
13
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Another Method to Solve 2 × 2 Mixed Strategy Games
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a11 a12
A
a21 a22
then
a22 − a21
p1 = , p1 + p2 = 1
(a11 + a22 ) − (a12 + a21 )
a22 − a12
q1 = , q1 + q2 = 1
(a11 + a22 ) − (a12 + a21 )
a11 a22 − a12 a21
and v =
(a11 + a22 ) − (a12 + a21 )
Then
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7 6
Therefore the mixed strategy for player A is , and the mixed strategy for player
13 13
8 5
B is , and
13 13
4
Value of the game = −
■
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Example 12 — Do Yourself. Consider the payoff matrix:
13
ba
1 3
4 0
di
3 −2
1 2
SOLVING m × n MATRIX
Let us consider a two-person zero-sum game involving two players A and B with the
following m × n payoff matrix :
Player B
t1 t2 ··· tn
az
. . . . .
Assume that all entries of the matrix are positive. If some of the entries are negative, a
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suitable constant k is added to each entry of the matrix so that all new entries are positive.
This procedure only increases the value of the game by some constant but has no effect on
the strategies of the player.
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Suppose that players A and B have mixed strategies P and Q, where
P = (p1 , p2 , . . . , pm ), Q = (q1 , q2 , . . . , qn )
Player B
Objective of Player A is to Maximize v, that is, player A’s average payoff is at least v
no matter what strategy player B uses.
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Since all the entries of payoff matrix are positive, therefore v is positive. Dividing every
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entry by v, we get:
p1 p2 pm
a11 + a21 + · · · + an1 ≥1
v v v
p1 p2 pm
a12 + a22 + · · · + am2 ≥1
a1n
v
p1
v
v
p2
N v
+ a2n + · · · + amn
v
p1 p2
..
.
pm
v
pm 1
≥1
+ +···+ =
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v v v v
p1 , p2 , . . . , pm ≥ 0
Let
pi
yi = for all i = 1, 2, . . . m
di
v
This gives
That is
1
Minimize = y1 + y2 + · · · + ym
v
Therefore LPP becomes:
subject to
az
a11 y1 + a21 y2 + · · · + an1 ym ≥ 1
a12 y1 + a22 y2 + · · · + am2 ym ≥ 1
..
N .
a1n y1 + a2n y2 + · · · + amn ym ≥ 1
y1 , y2 , . . . , ym ≥ 0
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From player B’s point of view:
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Objective of Player B is to Minimize v, that is, player B’s average payoff is at atmost
v no matter what strategy player A uses.
A
Since all the entries of payoff matrix are positive, therefore v is positive. Dividing every
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entry by v, we get:
q1 q2 qn
a11 + a12 + · · · + a1n ≤ 1
v v v
q1 q2 qn
a21 + a22 + · · · + a2n ≤ 1
v v v
..
.
q1 q2 qn
am1 + am2 + · · · + amn ≤ 1
v v v
q1 q2 qn 1
+ +···+ =
v v v v
q1 , q2 , . . . , qn ≥ 0
az
Let
qj
xj = for all j = 1, 2, . . . n
v
This gives
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a11 x1 + a12 x2 + · · · + a1n xn ≤ 1
a21 x1 + a22 x2 + · · · + a2n xn ≤ 1
..
.
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am1 y1 + am2 x2 + · · · + amn xn ≤ 1
1
x1 + x2 + · · · + xn =
v
x1 , x2 , . . . , xn ≥ 0
di
1
Maximize = x1 + x2 + · · · + xn
v
Therefore LPP becomes:
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subject to
az
x1 , x2 , . . . , xn ≥ 0
Observation: N
• LP for either player is the dual of the other player.
5 6 0
−1 2 3
1 −2 4
A
Player B
t1 t2 t3
u1 5 6 0
Player A u2 −1 2 3
u3 1 −2 4
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Player B
t1 t2 t3
u1 8 9 3
Player A u2 2 5 6
az
u3 4 1 7
yi =
pi
v
for i = 1, 2, 3
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and x j =
qj
v
for j = 1, 2, 3
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From A’s point of view, LPP is:
1
Minimize ZA = = y1 + y2 + y3
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subject to
A
1
Maximize ZB = = x1 + x2 + x3
v
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subject to
We will solve the game form B’s point of view using Simplex Method. Introducing slack
variables, s1 , s2 and s3 , we have
Minimize ZB = −x1 − x2 − x3 or ZB + x1 + x2 + x3 = 0
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subject to
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2x1 + 5x2 + 6x3 + s2 = 1
4x1 + x2 + 7x3 + s3 = 1
x1 , x2 , x3 , s1 , s2 , s3 ≥ 0
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Last Table:
cj 1 1 1 0 0 0
xB cB x1 x2 x3 s1 s2 s3 RHS
di
2 3 8
x1 = , x2 = , x3 =
67 67 67
1 2 3 8 13
Maximize = + + =
v 67 67 67 67
67
=⇒ v =
13
28
Also
qj
xj = =⇒ q j = x j v for j = 1, 2, 3
v
This implies
2 3 8
q1 = x1 v = , q2 = x2 v = , q3 = x3 v =
13 13 13
2 3 8
Therefore optimal strategy for player B is , ,
13 13 13
az
21 12 19
y1 = , y2 = , y3 =
268 268 268
Also
pi
yi =
v
p1 = y1 v =
21
52
,
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=⇒ pi = yi v =⇒ pi = yi v for i = 1, 2, 3
p2 = y2 v =
12
52
, p3 = y3 v =
19
52
ba
21 12 19
Therefore optimal strategy for player A is , ,
52 52 52
di
67 28
Value of the original game is: −3 =
13 13
A
■ Example 15 — Do Yourself. Formulate the following game as an LPP and then find
its solution using simplex method.
15 7 2
10 4 9
6 2 0
■ Example 16 — Do Yourself. Formulate the following game as an LPP and then find
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az
N
ba
di
A