INSTRUCTOR: EL JIREH P.

BIBANGCO

Game Theory
Prepared by: El Jireh Bibangco
 INSTRUCTOR: EL JIREH P.
BIBANGCO

Learning Objectives


 In this chapter you will learn about:

§
§ ss
 INSTRUCTOR: EL JIREH P.
BIBANGCO

Game Theory: Defined!

§ Game - it is a contest between two or
more players that consists of rules to
determine the winner
§ Game Theory – developed by John von
Neumann and is a mathematical
analysis of games. In many cases,
game theory uses probability.
§ JOHN VON
NEUMANN
 INSTRUCTOR: EL JIREH P.
BIBANGCO

Key Terms
§ Payoff - reward for winning the game
(money, points, etc.)
§ Payoff Table – matrix of payoffs
§ Strategy – a rule that determines a
player’s move(s) in order to win the
game
§ Two-Person Game – consist of two
players.
§ Zero-Sum-Game = a game consists of
the loser paying the winner.
§
 INSTRUCTOR: EL JIREH P.
BIBANGCO

Rock-Paper-Scissors Game
 PAYOFF TABLE Player B’s Move
  ROCK PAPER SCISSORS
Player A’s  ROCK 0 -$1 $1
Move

PAPER $1 0 -$1

SCISSORS -$1 $1 0
 INSTRUCTOR: EL JIREH P.
BIBANGCO

Tree Diagram of Outcomes

 INSTRUCTOR: EL JIREH P.
BIBANGCO

Black and White Card Game

§ There are four cards; two blacks and two
whites. Two players will select a card
each and place it faced down on the
table; then turn the card over. If the
result is two black cards, Player A wins
$5. If the result is two white cards,
Player A wins $1. If the result is one
black card and one white card, Player B
wins $2.
§ Draw the payoff matrix/table and the
tree diagram.
 INSTRUCTOR: EL JIREH P.
BIBANGCO

Payoff Table: Card Game

Player B’s Card
Black White
Pla Black $5 -$2
yer
A’s
White -$2 $1
Ca
rd
 INSTRUCTOR: EL JIREH P.
BIBANGCO

Tree Diagram: Ace Game

 INSTRUCTOR: EL JIREH P.
BIBANGCO

Game Strategy
§ Let P=the probability of playing a black
card
§ 1-P = the probability of playing a white
card
§
§ If Player B plays her black card, Player
A's expected profit is $5P-$2(1-p).
§ If Player B plays her white card, Player
A.s expected profit is -$2p+$1(1-p).
 INSTRUCTOR: EL JIREH P.
BIBANGCO

Game Strategy (Player A)

OPTIMAL STRATEGY
for Player A

5P-2(1-p) = -2P+1(1-
p)
5P-2+2P = -2P+1-P
7P-2 =
-3P+1
7P+3P = 1+2
10P = 3
P =
3/10 (B)
P = 7/10
(W)
 INSTRUCTOR: EL JIREH P.
BIBANGCO

Expected Average Gain

5P - 2 ( 1 - p ) = 5 ( 3 / 10 )- 2 ( 1 -
3 / 10 ) = 15 / 10 –
2 ( 7 / 10 )
=
14 / 10 – 14 / 10
= 1 / 10 or
$0 . 10

$0 . 10 = value of the
game
 INSTRUCTOR: EL JIREH P.
BIBANGCO

Game Strategy (Player B)

OPTIMAL STRATEGY
for Player B

5s-2(1-s) = -2s+1(1-
sp)
5s-2+2s = -2s+1-s
7s-2 =
-3s+1
7s+3s = 1+2
10s = 3
s =
3/10 (B)
s = 7/10
(W)
 INSTRUCTOR: EL JIREH P.
BIBANGCO

Game Strategy (Player B)

5s - 2 ( 1 - s ) = 5 ( 3 / 10 )- 2 ( 1 -
3 / 10 ) = 15 / 10 –
2 ( 7 / 10 )
=
14 / 10 – 14 / 10
= 1 / 10 or
$0 . 10

$0 . 10 = value of the
game
 INSTRUCTOR: EL JIREH P.
BIBANGCO

Two Strategies Used

 INSTRUCTOR: EL JIREH P.
BIBANGCO

D’Tour >>
§ Two generals, A and B, decide to play a
game. General A can attack General
B's city either by land or by sea.
General B can defend either by land or
sea.
§ Find the optimal strategy for each player
and the value of the game.