LE ANH KHOA BABAIU14124

QUANTITATIVE METHODS FOR BUSINESS

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ASSIGNMENT: GAME THEORY

M4.8: Determine the strategies for X and Y, given the following game. What is the value of
the game?
Y1 Y2
X1 2 -4
X2 6 10

Solution:
We have the following table:
Y1 Y2 Row Minimum
X1 2 -4 -4
X2 6 10 6
Column Maximum 6 10

Based on the table, we can see that there is a pure strategy in this situation with the saddle
point equals 6. Therefore, the strategy for X and Y will be, respectively, X2 and Y1 and the
value of the game is 6.
LE ANH KHOA BABAIU14124

M4.11: What is the value of the following game?

S1 S2
R1 21 116
R2 89 3

Solution:
We have the following table:
Y1 Y2 Row Minimum
X1 21 116 21
X2 89 3 3
Column Maximum 89 116

Based on the table, we can see that there is no pure strategy in this situation.
Let p and (1 - p) be the probability that X will choose the strategy X1 and X2 , respectively.
- If Y choose Y1 : EV = 21p + 89(1 - p)
- If Y choose Y2 : EV = 116p + 3(1 - p)
We have:
21p + 89(1 - p) = 116p + 3(1 - p)
21p + 89 - 89p = 116p + 3 - 3p
181p = 86
86 95
p= 0.4751; 1 - p = 0.5249
181 181
Therefore, the value of the game is:
86 95
EV = 21p + 89(1 - p) = 21 + 89 56.6906
181 181
LE ANH KHOA BABAIU14124

M4.12: Player A has a $1 bill and a $20 bill, and player B has a $5 bill and a $10 bill. Each
player will select a bill from the other player without knowing what bill the other player
selected. If the total of the bills selected is odd, player A gets both of the two bills that were
selected, but if the total is even, player B gets both bills.
(a) Develop a payoff table for this game. (Place the sum of both bills in each cell.)
(b) What are the best strategies for each player?
(c) What is the value of the game? Which player would you like to be?

Solution:
Let A1 and A2 be the situation that player A selects $5 and $10 bill, respectively.
B1 and B2 be the situation that player B selects $1 and $20 bill, respectively.
(a) We have the payoff table as following:
B1 B2 Row Minimum
A1 -6 25 -6
A2 11 -30 -30
Column Maximum 11 25

(b) Based on the table, we can see that there is no pure strategy in this situation.
Let p and (1 - p) be the probability that player A will choose the strategy A1 and A2 ,
respectively.
q and (1 - q) be the probability that player B will choose the strategy B1 and B2 ,
respectively.

*Strategy for player A:

- If player B choose B1 : EV = -6p + 11(1 - p)
- If player B choose B2 : EV = 25p - 30(1 - p)
We have:
-6p + 11(1 - p) = 25p - 30(1 - p)
-6p + 11 - 11p = 25p - 30 + 30p
72p = 41
41 31
p= 0.5694; 1 - p = 0.4306
72 72
Hence, player A should select $5 bill with 0.5694 probability and $10 bill with 0.4306
probability.
LE ANH KHOA BABAIU14124

*Strategy for player B:

- If player A choose A1 : EV = -6q + 25(1 - q)
- If player A choose A2 : EV = 11q - 30(1 - q)
We have:
-6q + 25(1 - q) = 11q - 30(1 - q)
-6q + 25 - 25q = 11q - 30 + 30q
72q = 55
55 17
q= 0.7639; 1 - q = 0.2361
72 72
Hence, player B should select $1 bill with 0.7639 probability and $20 bill with 0.2361
probability.
(c) The value of the game is:
41 31
*With player A: EV = -6p + 11(1 - p) = -6 + 11 1.3194
72 72
55 17
*With player B: EV = -6q + 25(1 - q) = -6 + 25 1.3194
72 72
Since the game value is positive, $5 bill > $1 bill and the probability of $20 bill is quite low
compare with the probability of $10 bill (0.2361 of $20 bill and 0.4306 of $10 bill); Id rather
be player A.
LE ANH KHOA BABAIU14124

M4-13: Resolve Problem M4-12. If the total of the bills is even, player A gets both of the
bills selected, but if the total is odd, player B gets both bills.

Solution:
Let A1 and A2 be the situation that player A selects $5 and $10 bill, respectively.
B1 and B2 be the situation that player B selects $1 and $20 bill, respectively.
(a) We have the payoff table as following:
B1 B2 Row Minimum
A1 6 -25 -25
A2 -11 30 -11
Column Maximum 6 30

(b) Based on the table, we can see that there is no pure strategy in this situation.
Let p and (1 - p) be the probability that player A will choose the strategy A1 and A2 ,
respectively.
q and (1 - q) be the probability that player B will choose the strategy B1 and B2 ,
respectively.

*Strategy for player A:

- If player B choose B1 : EV = 6p - 11(1 - p)
- If player B choose B2 : EV = -25p + 30(1 - p)
We have:
6p - 11(1 - p) = -25p + 30(1 - p)
6p - 11 + 11p = -25p + 30 - 30p
72p = 41
41 31
p= 0.5694; 1 - p = 0.4306
72 72
Hence, player A should select $5 bill with 0.5694 probability and $10 bill with 0.4306
probability.

*Strategy for player B:

- If player A choose A1 : EV = 6q - 25(1 - q)
- If player A choose A2 : EV = -11q + 30(1 - q)
LE ANH KHOA BABAIU14124

We have:
6q - 25(1 - q) = -11q + 30(1 - q)
6q - 25 + 25q = 11q + 30 - 30q
72q = 55
55 17
q= 0.7639; 1 - q = 0.2361
72 72
Hence, player B should select $1 bill with 0.7639 probability and $20 bill with 0.2361
probability.
(c) The value of the game is:
41 31
*With player A: EV = 6p - 11(1 - p) = 6 - 11 -1.3194
72 72
55 17
*With player B: EV = 6q - 25(1 - q) = 6 - 25 -1.3194
72 72
Since the game value is negative, $5 bill > $1 bill and the probability of $20 bill is quite low
compare with the probability of $10 bill (0.2361 of $20 bill and 0.4306 of $10 bill); Id rather
be player B.
LE ANH KHOA BABAIU14124

M4-14: Solve the following game:

Y1 Y2
X1 -5 -10
X2 12 8
X3 4 12
X4 -40 -5

Solution:
We have the following table:
Y1 Y2 Row Minimum
X1 -5 -10 -10
X2 12 8 8
X3 4 12 4
X4 -40 -5 -40

Based on the table, we can see that the game can be reduced to a 2 x 2 game, since X would
never play X1 or X4 because X will lose if X choose those strategies. Hence, the game is:
Y1 Y2 Row Minimum
X2 12 8 8
X3 4 12 4
Column Maximum 12 12

Based on the table, we can see that there is no pure strategy in this situation.
Let p and (1 - p) be the probability that X will choose the strategy X2 and X3 , respectively.
q and (1 - q) be the probability that Y will choose the strategy Y1 and Y2 , respectively.

*Strategy for X:
- If player Y choose Y1 : EV = 12p + 4(1 - p)
- If player Y choose Y2 : EV = 8p + 12(1 - p)
We have:
12p + 4(1 - p) = 8p + 12(1 - p)
12p + 4 - 4p = 8p + 12 - 12p
12p = 8
LE ANH KHOA BABAIU14124

8 4
p= 0.6667; 1 - p = 0.3333
12 12
Hence, X should select X2 with 0.6667 probability and X3 with 0.3333 probability.

*Strategy for Y:
- If player X choose X1 : EV = 12q + 8(1 - q)
- If player X choose X2 : EV = 4q + 12(1 - q)
We have:
12q + 8(1 - q) = 4q + 12(1 - q)
12q + 8 - 8p = 4q + 12 - 12q
12q = 4
4 8
q= 0.3333; 1 q = 0.6667
12 12
Hence, Y should select Y1 with 0.3333 probability and Y2 with 0.6667 probability.

*The value of the game is:

8 4
- With X: EV = 12p + 4(1 - p) = 12 +4 9.3333
12 12
4 8
- With Y: EV = 12q + 8(1 - q) = 12 +8 9.3333
12 12
LE ANH KHOA BABAIU14124

M4-18: For the following two-person, zero-sum game, are there any dominated strategies? If
so, eliminate any dominated strategy and find the value of the game.
PLAYER Ys STRATEGIES
Y1 Y2 Y3
PLAYER Xs X1 4 5 10
STRATEGIES X2 3 4 2
X3 8 6 9

Solution:
We have the following table:
Y1 Y2 Y3 Row Minimum
X1 4 5 10 4
X2 3 4 2 2
X3 8 6 9 6
Column
8 6 10
Maximum

Based on the table, we can see that the game can be reduced to a 2 x 2 game (since X2 is
dominated by X1 and X3 , we can eliminate X2 ; since Y3 is dominated by Y1 and Y2 , e can
eliminate Y3 ). Hence, the game is:
Y1 Y2 Row Minimum
X1 4 5 4
X3 8 6 6
Column Maximum 8 6

Based on the table, we can see that there is a pure strategy in this situation with the saddle
point equals 6. Therefore, the strategy for X and Y will be, respectively, X3 and Y2 and the
value of the game is 6.