Game Theory and Strategy

Content

Two-persons Zero-Sum Games

Two-Persons Non-Zero-Sum Games
N-Persons Games

Introduction

At least 2 players
Strategies
Outcome
Payoffs

Two-persons Zero-Sum Games

Payoffs of each outcome add to zero

Pure conflict between 2 players

Two-persons Zero-Sum Games

Colin
A
Rose A

7, -7 -1, 1 1, -1 0, 0

5, -5 1, -1 6, -6 -9, 9

3, -3 2, -2 4, -4 3, -3

-8, 8 0, 0

0, 0

8, -8

Two-persons Zero-Sum Games

Colin
A

Rose A

-1

-9

-8

Dominance and Dominance Principle

Definition: A strategy S dominates a

strategy T if every outcome in S is at
least as good as the corresponding
outcome in T, and at least one outcome
in S is strictly better than the
corresponding outcome in T.
Dominance Principle: A rational player
would never play a dominated strategy.

Saddle Points and Saddle Points Principle

Definition: An outcome in a matrix game

is called a Saddle Point if the entry at
that outcome is both less than or equal
to any in its row, and greater than or
equal to any entry in its column.
Saddle Point Principle: If a matrix game
has a saddle point, both players should
play a strategy which contains it.

Value

Definition: For a matrix game, if there is

a number such that player A has a
strategy which guarantees that he will
win at least v and player B has a strategy
which guarantees player A will win no
more than v, then v is called the value of
the game.

Two-persons Zero-Sum Games

Colin
A

Rose A

-1

-9

-8

Saddle Points
Colin
A
Rose

Column
Maximum

B C D Row
minimum
3 2 5 2
Maximin

-10 2 0 1

-10

5 2 3

8 -4 -5 -5

8 2 5
Minimax

Maximin

Saddle Points

0 saddle point
1 saddle point
more than 1 saddle points

Mixed Strategy
Colin
A

Rose A

-3

Mixed Strategy

Colin plays with probability x for A, (1-x)

for B
Rose A: x(2) + (1-x)(-3) = -3 + 5x
Rose B: x(0) + (1-x)(3) = 3 - 3x
if -3 + 5x = 3 - 3x => x = 0.75
Rose A: 0.75(2) + 0.25(-3) = 0.75
Rose B: 0.75(0) + 0.25(3) = 0.75

Mixed Strategy

Rose plays with probability x for A, (1-x)

for B
Colin A: x(2) + (1-x)(0) = 2x
Colin B: x(-3) + (1-x)(3) = 3 - 6x
if 2x = 3 - 6x => x = 0.375
Colin A: 0.375(2) + 0.625(0) = 0.75
Colin B: 0.375(-3) + 0.625(3) = 0.75

Mixed Strategy

0.75 as the value of the game

0.75A, 0.25B as Colins optimal strategy
0.375A. 0.625B as Roses optimal strategy

Mixed Strategy
Colin

Rose

Row
Rose
Rose
difference oddments probabilities

-3

2 - (-3) = 5 3

3/8

0 3 = -3

5/8

Column difference 2 0
=2
Colin oddments
6

-3 3
= -6
2

Colin probabilities

2/8

6/8

Minimax Theorem

Every m x n matrix game has a solution. There is a

unique number v, called the value of game, and
optimal strategy for the players such that
i) player As expected payoff is no less that v, no
matter what player B does, and
ii) player Bs expected payoff is no more that v, no
matter what player A does
The solution can always be found in k x k subgame
of the original game

Minimax Theorem (example)

Colin
A

12

13

10

11

14

15

Rose A

Minimax Theorem (example)

There is no dominance in the above

example
From arrows in the graph, Colin will only
choose A, B or C, but not D or E.
So the game is reduced into a 3 x 3
subgame

Example
9-Police
9-0

8-1

7-2

6-3

5-4

1/2

1/2

1/2

6-1

1/2

1/2

1/2

5-2

1/2

1/2

4-3

1/2

7-Guerrillas 7-0

Example
9-Police
7-2

6-3

5-4

7-Guerrillas 7-0

1/2

6-1

1/2

1/2

5-2

1/2

1/2

4-3

1/2

Example
9-Police

7-Guerrillas 7-0

4-3

7-2

6-3

5-4

1/2

1/2

Example
9-Police

7-Guerrillas 7-0

4-3

7-2

5-4

1/2

Mixed Strategy
9-Police

7-Guerrillas 7-0
4-3

7-2

5-4

Row
Guerrillas Guerrillas
difference oddments probabilitie
s

1/2

-1/2

2/3

1/3

Column difference 1/2

Police oddments

1/2

Police probabilities 2/3

1/3

Utility Theory

Rose

A
B
C

Colin
B

U
W
Y

V
X
Z

Utility Theory

Roses order is u, w, x, z, y, v
Colins order is v, y, z, x, w, u

Rose

A
B
C

Colin
B

6
5
2

1
4
3

Utility Theory
v

i)

20

40

60

80

100

ii)

-1

19

21

23

25

27

iii) 17

Utility Theory

Transformation can be done using a positive linear

function, f(x) = ax + b
in this example, f(x) = 0.5(x - 17)
Colin

Colin

Rose

27, -5

17, 0

19, -1

23, -3

-------->

Rose

5, -5

0, 0

1, -1

3, -3

Two-Persons Non-Zero-Sum Games

Equilibrium outcomes in non-zero-sum

games ~ saddle points in zero-sum games

Prisoners Dilemma
Colin
Confess Dont
Rose Confess 10, 10
Dont

20, 0

0, 20
1, 1

Nash Equilibrium

If there is a set of strategies with the

property that no player can benefit by
changing her strategy while the other
players keep their strategies unchanged,
then that set of strategies and the
corresponding payoffs constitute the Nash
Equilibrium

Dominant Strategy Equilibrium

If every player in the game has a dominant

strategy, and each player plays the
dominant strategy, then that combination of
strategies and the corresponding payoffs
are said to constitute the dominant strategy
equilibrium for that game.

Pareto-optimal

If an outcome cannot be improved upon, ie.

no one can be made better off without
making somebody else worse off, then the
outcome is Pareto-optimal

Pareto Principle

To be acceptable as a solution to a game,

an outcome should be Pareto-optimal.

Prudential Strategy, Security Level

and Counter-Prudential Strategy

In a non-zero-sum game, player As optimal

strategy in As game is called As prudential
strategy.
The value of As game is called As security
level
As counter-prudential strategy is As optimal
response to his opponents prudential
strategy.

Example
Colin
A

Rose A

2, 4

1, 0

3, 1

0, 4

Example

consider only Roses strategy

saddle point at AB

Colin

Rose A

Example

consider only Colins strategy

Colin
A

Column difference

4-1=3

0-4=-4

Colin oddments

Colin probabilities

4/7

3/7

Rose

Example
Rose
Colin
Rose
strategy strategy payoff
prudential prudential 11/7

Colin
payoff
16/7

prudential Counter- 2
prudential
Counter- Prudential 12/7
prudential
Counter- Counter- 3
prudential prudential

4
16/7
1

Example
Rose prudential

Colin Prudential

4/7A, 3/7B

Rose Counter-prudential

Colin Counter-prudential

Example
BB

AA

Equilibrium
BA
AB

Co-operative Solution

Negotiation Set

Co-operative Solution

Negotiation Set

Co-operative Solution

Concerns are Trust and Suspicion

N-Person Games

More important and common in real life

n is assumed to be at least three

N-Person Games

Rose

Larry A

Larry B

Colin

Colin

1, 1, -2

-4, 3, 1

2, -4, 2

-5, -5, 10

A
Rose

3, -2, -1 -6, -6, 12

2, 2, -4 -2, 3, 1

N-Person Games
Colin and Larry

Rose

AA

BA

AB

BB

-4

-6

-5

-2

N-Person Games
Rose and Larry

Colin

AA

BA

AB

BB

-4

-2

-5

-6

N-Person Games
Rose and Colin

Larry

AA

BA

AB

BB

-2

10

-1

-4

12

-1

N-Person Games

Rose

Colin and
Larry
BA
BB

Rose optimal

-4

-6

3/5

-5

-2

2/5

1/5

Value = -4.4

Colin and Larry 4/5

optimal

N-Person Games

Colin

Rose and
Larry
BA
AB

Colin optimal

-4

-2

-5

-6

Value = -4

Rose and Larry 1

optimal

N-Person Games

Larry

Rose and
Colin
AA BA

Larry optimal

-2

3/7

-1

-4

4/7

1/7

Value = -1.43

Rose and Colin 6/7

optimal

N-Person Games

The result is
Rose v.s. Colin and Larry

-4.4, -0.64, 5.04

Colin v.s. Rose and Larry

2, -4, 2

Larry v.s. Rose and Colin

2.12, -0.69, -1.43

Superaddictive

A characteristic function form game (N, v)

is called superadditive
if v(S, T) >= v(S) + v(T) for any two
coalitions S and T

N-Person Prisoners Dilemma

Number of others choosing C
Player
chooses

-2

-1

-1

N-Person Prisoners Dilemma

General form of N-Person Prisoners Dilemma

each of n players has two strategies, C and D
for every player, D is a dominant strategy
if all players choose D, add will be worse off than
if all players had chosen C

Example
Blues

Red

Example

Sincere choice
1st round

2nd round

Blues

Red

Example

Optimal choice

Blues

Red

2nd round

1st round

From the bottom up algorithm

i) under optimal play, the Reds choice in last

round will be the player who is last on the Blues
preference list. Mark that player as the Reds last
round choice and cross him off both teams lists
ii) the Blues choice in last round will be the
player who is last on the Reds reduced list. Mark
the player as Blues and cross him off both teams
lists
iii) continue like this, finding the choices in the
next-to-last round, and on up to the first round

Example

Sincere choice

2nd round

Blues

Red

Example

Sincere choice

2nd round

Blues

Red

Example

Sincere choice
Blues

Red

1st round

2nd round

Example

Sincere choice
Blues

Red

1st round

2nd round

Example of N-Person Prisoners

Dilemma
Blues
A
B
C
D
E
F

Red
E
F
B
A
D
C

Green
C
F
E
D
A
B

Example of N-Person Prisoners

Dilemma

Sincere Choice

Blues
1st round A
2nd round B
C
D
E
F

Red
E
F
B
A
D
C

Green
C
F
E
D
A
B

Example of N-Person Prisoners

Dilemma

After Greens optimal Choice

Blues
1st round A
2nd round B
C
D
E
F

Red
E
F
B
A
D
C

Green
C
F
E
D
A
B

Example of N-Person Prisoners

Dilemma

After Reds optimal Choice

Blues
1st round A
B
C
2nd round D
E
F

Red
E
F
B
A
D
C

Green
C
F
E
D
A
B

Example of N-Person Prisoners

Dilemma

After Blues optimal Choice

Blues
nd
2 round A
B
1st round C
D
E
F

Red
E
F
B
A
D
C

Green
C
F
E
D
A
B

END