ASSIGNMENT 2 - GAME THEORY

Question 01: Find the optimal strategy for each player and the value of the game

Y1 Y2
X1 -9 14
X2 -4 16

Solution:

Y1 Y2 Row min
X1 -9 14 -9
X2 -4 16 -4
Col max -4 16

Maximin = Minimax = -4 = Value of the game

Therefore, Player X should adopt strategy X2 and Player Y should adopt strategy Y1
Question 02: Find the optimal strategy for each player and the value of the game

Y1 Y2
X1 16 6
X2 2 10
Solution:

Y1 Y2 Row min
X1 16 6 6 p
X2 2 10 2 1-p
Col max 16 10
q 1-q

Maximin = 6; Minimax = 10. So we cannot apply Pure Strategy here, need to use Mixed Strategy instead
We obtain two equations:
16𝑝 + 2(1 − 𝑝) = 6𝑝 + 10(1 − 𝑝)
16𝑞 + 6(1 − 𝑞) = 2𝑞 + 10(1 − 𝑞)
4 2
Solving them to obtain 𝑝 = 9 and = 9 . So player X should play strategy X1 4/9 times and X2 5/9 times,
while player Y should play strategy Y1 2/9 times, and Y2 7/9 times
4 5
Value of the game = 16𝑝 + 2(1 − 𝑝) = 16 ∗ 9 + 2 ∗ 9 = 8.222

Question 03: Find the optimal strategy for each player and the value of the game

Y1 Y2
 X1 -5 -10
X2 12 8
X3 4 12
X4 -40 -5
Solution:
Apply Domination method we observe the following info: Strategy X2/X3 dominates both X1 and X4 so
we can eliminate X1 and X4. The reduced payoff matrix now becomes:

Y1 Y2
X2 12 8 p
X3 4 12 1-p
q 1-q

We obtain two equations:

12𝑝 + 4(1 − 𝑝) = 8𝑝 + 12(1 − 𝑝)
12𝑞 + 8(1 − 𝑞) = 4𝑞 + 12(1 − 𝑞)
2 1
Solving them to obtain 𝑝 = and 𝑞 = . So player X should play strategy X2 2/3 times and X3 1/3
3 3
times, while player Y should play strategy Y1 1/3 times, and Y2 2/3 times
2 1
Value of the game = 12𝑝 + 4(1 − 𝑝) = 12 ∗ + 4 ∗ = 9.333
3 3

Question 04: Given the following table

Y1 Y2 Y3
X1 4 5 10
X2 3 4 2
X3 8 6 9

a) Without applying Dominance, find the optimal strategy and value of the game
b) Applying Dominance, find the optimal strategy and value of the game, then compare the result to
a)
Solution:
a) Without applying Dominance, find the optimal strategy and value of the game
Y1 Y2 Y3 Row min
X1 4 5 10 4
X2 3 4 2 2
X3 8 6 9 6
Col max 8 6 10

Maximin = Minimax = 6 = Value of the game

Therefore, Player X should adopt strategy X3 and Player Y should adopt strategy Y2
 b) Applying Dominance, find the optimal strategy and value of the game
Apply Domination method we observe the following info:

 Strategy X1 dominates X2 so we can eliminate strategy X2. The reduced payoff matrix now
becomes:

Y1 Y2 Y3
X1 4 5 10
X3 8 6 9
 Strategy Y1/Y2 dominates Y3 so we can eliminate strategy Y3. The reduced payoff matrix now
becomes:

Y1 Y2 Row min
X1 4 5 4
X3 8 6 6
Col max 8 6

So minimax = maximin = 6, the result is exactly the same as part a

Question 05: Given the following table

Y1 Y2 Y3 Y4
X1 72 14 -84 -14
X2 -16 85 -69 -53
X3 62 -24 30 32
X4 56 -24 -48 7

a) Applying Dominance, reduce to dimension of the game

b) Find the optimal strategy for each player and the value of the game
Solution:
Apply Domination method we observe the following info:

 Strategy X3 dominates X4 so we can eliminate strategy X4. The reduced payoff matrix now
becomes:

Y1 Y2 Y3 Y4
X1 72 14 -84 -14
X2 -16 85 -69 -53
X3 62 -24 30 32
 Strategy Y3 dominates Y1 so we can eliminate strategy Y1. The reduced payoff matrix now
becomes:

Y2 Y3 Y4
X1 14 -84 -14
X2 85 -69 -53
 X3 -24 30 32
 Strategy Y3 dominates Y4 so we can eliminate strategy Y4. The reduced payoff matrix now
becomes:

Y2 Y3
X1 14 -84
X2 85 -69
X3 -24 30
 Strategy X2 dominates X1 so we can eliminate strategy X1. The reduced payoff matrix now
becomes:

Y2 Y3
X2 85 -69 P
X3 -24 30 1-p
q 1-q
We obtain two equations:
85𝑝 − 24(1 − 𝑝) = −69𝑝 + 30(1 − 𝑝)
85𝑞 − 69(1 − 𝑞) = −24𝑞 + 30(1 − 𝑞)
Solving them to obtain 𝑝 = 0.2596 and = 0.4760 . So player X should play strategy X2 0.2596 times
and X3 0.7404 times, while player Y should play strategy Y2 0.4760 times, and Y3 0.5240 times
Value of the game = 85𝑝 − 24(1 − 𝑝) = 4.2964
Question 06:
Given the following payoff table for a two-person and zero-sum game:

𝒀𝟏 𝒀𝟐 𝒀𝟑 𝒀𝟒
𝑿𝟏 −8 −4 17 16
𝑿𝟐 16 25 16 10
𝑿𝟑 −6 23 6 9
𝑿𝟒 −5 14 24 17

With 𝑋𝑖 and 𝑌𝑖 is the strategy that player X and Y has, respectively. Based on those given information:
a) Apply Dominance rule to reduce the dimension of the payoff matrix
b) Find the optimal strategy for each player
c) Calculate the value of the game

Solution:
Apply Domination method we observe the following info:

 Strategy X4 dominates X1 so we can eliminate strategy X1. The reduced payoff matrix now
becomes:
 𝒀𝟏 𝒀𝟐 𝒀𝟑 𝒀𝟒
𝑿𝟐 16 25 16 10
𝑿𝟑 −6 23 6 9
𝑿𝟒 −5 14 24 17
 Strategy X4 dominates X3 so we can eliminate strategy X3. The reduced payoff matrix now
becomes:

𝒀𝟏 𝒀𝟐 𝒀𝟑 𝒀𝟒
𝑿𝟐 16 25 16 10
𝑿𝟒 −5 14 24 17
 Strategy Y1 dominates Y2 so we can eliminate strategy Y2. The reduced payoff matrix now
becomes:

𝒀𝟏 𝒀𝟑 𝒀𝟒
𝑿𝟐 16 16 10
𝑿𝟒 −5 24 17
 Strategy Y1 dominates Y3 so we can eliminate strategy Y3. The reduced payoff matrix now
becomes:

𝒀𝟏 𝒀𝟒 Row min
𝑿𝟐 16 10 10
𝑿𝟒 −5 17 -5
Col max 16 10

Maximin = Minimax = 10 = Value of the game

Therefore, Player X should adopt strategy X2 and Player Y should adopt strategy Y4
Question 07:
Shoe Town and Fancy Foot are both vying for more share of the market. If Shoe Town does no
advertising, it will not lose any share of the market if Fancy Foot does nothing. It will lose 2% of the
market if Fancy Foot invests $10,000 in advertising, and it will lose 5% of the market if Fancy Foot
invests $20,000 in advertising. On the other hand, if Shoe Town invests $15,000 in advertising, it will
gain 3% of the market if Fancy Foot does nothing; it will gain 1% of the market if Fancy Foot invests
$10,000 in advertising; and it will lose 1% if Fancy Foot invests $20,000 in advertising.
a) Develop a payoff table for this problem.
b) Find the optimal strategy for each player and the value of the game
Solution:

FF NoAd FF 10k FF 20k Row min

ST NoAd 0 -2 -5 -5
ST 15k 3 1 -1 -1
Col max 3 1 -1

Maximin = Minimax = -1 = Value of the game

Therefore, Shoe Town should adopt strategy ST 15k and Fancy Foot should adopt strategy FF 20k