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This matrix, U, is As outcome matrix and represents the points gained in the game by
A, the outcomes for B are given by U (zero sum).
Example 3
Rustic poker:
Two players, A and B, initially put in a stake of S each. Two cards, one ace (C) and a
jack (J) are put in a hat. One player (A) draws a card. C is the winning card. A may
then fold in which case B takes the stakes or A can increase his stake to S. B may
then fold allowing A to take the stakes, or increase his stake to S and take the
remaining card. The player with C wins the stakes. In this game it does not pay to
always play the same way.
Example 4
Prisoners dilemma
Two prisoners were found with stolen property and are questioned separately. Each
may confess to stealing and get nine years or they may keep quiet and get 1 year for
being in possession of stolen goods. If one confesses but the other does not then he
will be let off for providing evidence while the other gets 10 years. What should each
one do? N.b. each one makes a decision without knowing what the other decides.
The strategy for each player is that they confess (C) or that they refuse to confess (R).
The outcome matrix is:
Where this is the outcome matrix for A, with Bs outcomes in brackets (non zero
sum).
Terminology:
Players: the participants, the parties involved
Moves: made in a sequence, some may be simultaneous; they are decisions or results
of chance events.
Outcome: results of a game
Side payment: a payment made by one player (A) to another (B) to persuade B to
take a decision that without the payment would not be Bs preferred one.
Risk: describes a situation in which the outcomes appear probabilistic to the player
concerned.
Strategy: description of decisions in all possible situations. In a pure strategy all
decisions are prescribed definitely. In a mixed strategy there is a choice which may be
selected according to specific probabilities.
Perfect Information: describes a game in which all of the players know the previous
moves at every stage.
Utility: reflects preferences of outcomes, it is a real number
k
outcomes o i with utilities U (oi ) which occur with probabilities p i . Note that
1.
i 1
Zero sum game: one in which the sum of the gains (utilities) of all payers is zero for
each sure prospect.
Non zero sum game: the sum is not zero in every case.
Sure prospect: A possible outcome ones all moves have been made.
2. Analysis of Games
In a game:
1. Each player has a well defined set of choices which are made at one or more
stages. These are called pure strategies
2. The choices made by all of the players i.e. their strategies, determine the
outcome of the game, or the probabilities of various outcomes.
3. Each player has an order of preference for the outcomes.
4. Each player knows 1) and 2) the rules of the game and also 3) for all of the
players.
What is a strategy?
A choice of strategies by all players leads to a complete play of the game. Thus a
strategy for a player must lay down in advance a compete set of moves, so that in all
circumstance which may occur the player knows what they are going to do.
A1
A2
A3
A4
S
-S
S
-S
-S
-S
-S
-S
B2
0
1
S 'S
2
1
S S '
2
-S
S
S
S
-S
-S
S
-S
-S
S
0
0
-S
A3 and A4 are never used since A either loses money or just breaks even and
so they are not worthwhile strategies.
The strategies above are decisions which lead to a definite play of the game and are
called pure strategies. Each pure strategy can be labelled by the name of the player
and number eg A1. A player, however, can choose a set of pure strategies and use a
lottery device such as a coin or a dice to decide pure strategy of this set to use in any
particular play of the game. This way of choosing a strategy is known as a mixed
strategy.
Example 5:
Goofspiel
Two players are each provided with 3 cards numbered 1, 2 and 3. On the first move A
and B simultaneously choose a card and the player with the highest number wins a
score of X, they score X/2 if the numbers are equal. The cards are not replaced. The
procedure on the next two moves is the same, but then the winning player scores Y
and Z on the 2nd and 3rd moves respectively. The player with the highest score wins an
amount of money from the other proportional to the difference in the scores.
Game tree:
A typical strategy for A is to play 2 first, then if B plays 1, 2 or 3 first then play 3, 3,1
respectively. Write this as (2;3,3,1). For the first card you have three choices and for
the second card you have 2 choices so A has 3x2x2x2 strategies in all, similarly, B
has 24 strategies.
Part of the outcome matrix for A:
So, we can write U B (i) U A (i) and bs outcome matrix is As outcome matrix. We
may write the element for As ith pure strategy and Bs ith pure strategy as U ij .
Example 6
During the war the Japanese decided to take a convoy of ships from Rabaul to Lae.
They had to choose whether to go North or South of New Britain. The Americans
wanted to stop them by bombing them.
The Americans judged that if they searched to the north and the ships went via the
north they would take a day to find them and have two days bombing. If the ships
went south and they search north then they would give up searching after 1 day then
search S and still have two days bombing. If they searched south and the ships went
south then they would have three days bombing but if the ships went north then they
would only get one days bombing. This gives the following payoff matrix.
Security levels:
For each of As pure strategies there is a minimum pay-off. This is called the security
level of that pure strategy. Thus
min(u ij )
j
Is the security level of pure strategy Ai. The rational player, if they are using only
pure strategies, wants to find the strategy Ai which gives the maximum of the security
levels. Then A is assured the payoff
max min uij
i j
min u ij
i
They are then looking for the pure strategy Bj which maximises their security levels.
They are then assured of payoff:
max min uij
j
If the Americans choose South they score either 1 or 3, so they get at least 1, this is
called their security level (SL). If they choose north, their SL is 2. If the Japanese
choose south their SL is -3, if north their security level is -2.
Suppose both sides choose to maximise their security levels. Then the Americans
choose N to get an SL of 2 and the Japanese choose N for a Sl of -2. Both choose to
maximise their minimum utility.
Neither side could regret its choice. If the Americans had chosen S they would only
have scored 1, and the Japanese would not have improved things by choosing S so
there was no reason for change. Further, if one side had known the basis for the
others decision there would still have been no reason for choosing differently.
In this case the two strategies are said to be in equilibrium. Neither side could
improve its score by changing.
In general two strategies are said to be in equilibrium if neither side can improve its
utility by changing its strategy unilaterally.
If A has strategies Ai and B has strategies Bj, producing utilities Uij for A, then i * , j *
is an equilibrium pair if
U ij * U i * j * U i * j
i, j
ie change B and A gets more (ie B gets less) and change As and A gets more.
The position i * , j * is then known as a saddle point of the matrix. 0
Note that A is finding maximinjUij and B is finding minjmaxiUij. If these two are equal
= V then V is known as the value of the game.