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hello!
Angeline Barron
Justine Wilma Dagdagan
Dianne Creus Ronato

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 Presentation outline
I. What is Game Theory?
II. Identifying a Pure Strategy
III. Mixed Strategy Games
IV. Larger Mixed Strategy Games

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 1.
What is game theory?

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two or more decision makers, they are called
and they compete as adversaries against each
other.

– means that the gain (or loss) for one

player is equal to the corresponding loss or gain from
the other player
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 have been
developed for situations in which the
competing players are;

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 Two manufacturing companies of a particular product who
compete for market share: &

Marketing Strategies to take market share from the other company

1. Increase advertising
2. Provide quantity discounts
3. Extend product warranty

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 Increase Quantity Extend
Advertising, Discount, b2 Warranty, b3
b1
Increase 4 3 2
Advertising, a1
Quantity Discount, -1 4 1
a2
Extend Warranty, 5 -2 0
a3

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 Increase Quantity Extend Minimum
Advertising, Discount, b2 Warranty, b3
b1
Increase 4 3 2 2
Advertising, a1
Quantity Discount, -1 4 1 -1
a2
Extend Warranty, 5 -2 0 -2
a3

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 Maximum of row
minimums

Increase Quantity Extend Minimum

Advertising, Discount, b2 Warranty, b3
b1
Increase 4 3 2 2
Advertising, a1
Quantity Discount, -1 4 1 -1
a2
Extend Warranty, 5 -2 0 -2
a3
Maximum 5 4 2
Minimum of column
maximums 9
 2.
Identifying a pure
strategy
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Identifying a Pure
Strategy

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 3.

Mixed strategy games

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Mixed strategy

No saddle point or
maximin ≠ minimax

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 Ex: Football teams
Let Team A (Offense Team) trying to gain the yardage
a1 = running play
a2 = passing play

Team B (Defense Team) trying to keep the yardage gain

b1 = running defense
b2 = passing defense

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Team a Offensive team
Let
p = probability Team A selects running play
(1-p) = the probability selects passing play

If Team B selects b1:

EV(yardage) = 1p + 15(1-p)

If Team B select b2:

EV(yardage) = 6p + 0(1-p)
= 6p

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 Solving for p!
🏃🏃🏃 1p + 15(1-p) = 6p
Running play probability

1p + 15 - 15p = 6p
20p = 15
p = 15/20 or 0.75

Passing play probability

💃💃💃 (1-p) = 1-0.75 = 0.25

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Value of the game
EV(Yardage) = 1p + 15(1-p)
= 1(0.75) + 15 (0.25)
= 0.75 + 3.75
= 4.5 yards per play

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Team b’s optimal probabilities
Let
q = probability Team A selects running play
(1-q) = the probability selects passing play

If Team A selects a1:

EV(yargade) = 1q + 6(1-q)

If Team A select a2:

EV(yardage) = 15q + 0(1-q)
= 15q

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Solving for q!
🏃🏃🏃 Running play probability
1q + 6(1-q) = 15q
1q+ 6 – 6q = 15p
20p = 6
p = 6/20 or 0.30

💃💃💃 Passing play probability

(1-q) = 1-0.30 = 0.70

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 4.

Larger Mixed strategy

games
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 Larger
Pure Mixed
Mixed
Strategy Strategy
Strategy
Maximin =
Minimax

2x2 Matrix

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Process in Solving Larger Mixed Strategy Game
(two-person, zero-sum game)
Solve for optimal mixed strategy
05 probabilities.

Eliminate all dominated strategies until

04 the table is reduced to a 2x2 matrix.

03 Look for a DOMINATED STRATEGY.

Compute for the row minimums and column

02 maximums.

Create a table for the identified strategies of

01 players.
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 1) Create a table for the identified
strategies of players.

Player B1 Player B2 Player B3

Player A1 0 -1 2

Player A2 5 4 -3

Player A3 2 3 -4

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 2) Compute for the row minimums and
column maximums.

Player B1 Player B2 Player B3 Minimum

Player A1 0 -1 2 -1

Player A2 5 4 -3 -3

Player A3 2 3 -4 -4

Maximum 5 4 2

2 = -1
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 3) Look for a DOMINATED STRATEGY.

DOMINATED STRATEGY – exists if another strategy is

at least as good regardless what the opponent does.

Player B1 Player B2 Player B3

Player A1 0 -1 2

Player A2 5 4 -3

Player A3 2 3 -4

Player A2 > Player A3

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 4) Eliminate all dominated strategies
until the table is reduced to a 2x2 matrix.

Player B1 Player B2 Player B3

Player A1 0 -1 2

Player A2 5 4 -3

ROW A1 : -1 < 0
ROW A2 : 4<5

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 5) Solve for optimal mixed strategy
probabilities.
p = probability that Player A selects strategy A1.
Player B2 Player B3
(1 - p) = probability that Player A selects strategy A2

Player A1 -1 2 Player B selects B2 : Player B selects B3 :

EV = -1p + 4 (1 – p) EV = 2p + (-3 (1 – p))
= -1p + 4 – 4p = 4 – 5p = 2p – 3 + 3p = 5p -3
Player A2 4 -3

Solve for the value of p : Player B selects B2 :

4 – 5p = 5p -3 EV = -1 (0.70) + 4 (0.30)
4 + 3 = 5p + 5p = - 0.70 + 1.2
7 = 10p = 0.50
10 10
0.7 = p Player B selects B3 :
EV = 2 (0.70) + (-3 (0.30))
With p : 0.70
= 1.40 – 0.90
(1 - p) = 1 – 0.70 = 0.30
= 0.50
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 5) Solve for optimal mixed strategy
probabilities.
q = probability that Player B selects strategy B2.
Player B2 Player B3
(1 - q) = probability that Player B selects strategy B3.

Player A1 -1 2 Player A selects A1 : Player A selects A2 :

EV = -1q + 2 (1 – q ) EV = 4q + (-3 (1 –q ))
= -1q + 2 – 2q = 2 – 3q = 4q – 3 + 3q = 7q -3
Player A2 4 -3

Solve for the value of q : Player A selects A1 :

2 – 3q = 7q -3 EV = -1 (0.50) + 2 (0.50)
2 + 3 = 7q + 3q = - 0.50 + 1
5 = 10q = 0.50
10 10
0.5 = q Player A selects A2 :
EV = 4 (0.50) + (-3 (0.50)
With q: 0.50 = 2 – 1.50
(1 - q) = 1 – 0.50 = 0.50 = 0.50
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 Points to remember

To determine if a If a pure strategy If the game is

pure strategy does not exist and reduced to 2x2,
solution exists, use the game is larger solve for the
MAXIMIN for player than a 2x2 matrix, OPTIMAL MIXED
A and MINIMAX for identify the STRATEGY
player B. DOMINATED PROBABILITIES.
STRATEGIES to
If a pure strategy eliminate rows
exists, it is the and/or columns.
OPTIMAL
SOLUTION.

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Thank You!
Any questions?

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