Theory of

Games
DR. SHAILESH MATHUR
ASSOCIATE PROFESSOR
DEPARTMENT OF ACCOUNTANCY & BUSINESS STATISTICS
S. S. JAIN SUBODH P. G. (AUTONOMOUS) COLLEGE, JAIPUR
 INTRODUCTION

Game theory is a mathematical technique that deals

with the general features of competitive situation.
Game theory deals with the situations in which
there are two or more competitors with conflating
interest each of whose action influence, but do not
completely determine, the out come of certain
event.
 ASSUMPTION / CHARACTERISTICS OF GAME
THEORY
1. Number of participants in any competitive situation is finite.
2. For each participants a finite number of alternatives are
available.
3. Every participant has the knowledge about the alternatives
available to his opponents,
4. Every combination of cources of action determine an outcome
which results in a gain to each player. The gain or loss of each
player is finite and is fixed before the game.
5. All player are equally wise and behave rationally.
6. Each players makes individual decision
7. Each players attempts to maximize his gain or minimize his loss.
8. There exists a set of rules according to which pay off will be
determined.
 IMPORTANT TERMS
1. Game: A game reprsents a con
 TWO PERSON ZERO SUM GAME
Two person zero sum game are game played by two persons / parties /
group with directly opposing interests. One person gain is exactly equal
to the loss of another person and therefore the sum total of the gain and
losses is equal to zero.
The gain resulting from a two person zero sum are more easily
represented in the form of matrix, known as Pay-off Matrix.
Column Player
C1 C2 C3
R1 2 -4 3
Player
Row

R2 4 -1 -3
R3 6 -3 4

The entry within the matrix represent the gain to player R for each
outcome of the play. A positive entry demotes a payment for C to R
whilst a negative entry demotes a payment form R to C.
 PURE STRATEGY GAME
(GAME WITH SADDLE POINT)
Such problem will be solved on the basis of mini-max principle. Under Mini-
max Principle the following steps should be followed:
Step I: Select the minimum element of each row of a pay off matrix and put it
in “Row Minima Column”
Step II: Select the maximum element of each column of a pay off matrix and
put in “Column Maxima Row”
Step III: Select the maximum element from row minima column and
minimum element from column maxima row.
Saddle point will exit if the maximum element from row minima is
equal to minimum element from column maxima.
Solution of Game:
 The best strategy for row player is the row to which saddle point
belong;
 The best strategy for column player is the column to which saddle
point belong;
 Value of the Game = The value of saddle entry.
Question 1: Solve the following games
(a) Column Player
C1 C2 C3
R1 3 0 -3
Player
Row

R2 2 3 1
R3 -4 2 -1
Saddle Point
Solution: Column Player

C1 C2 C3 Row Minima
Column
R1 3 0 -3 -3
Player
Row

R2 2 3 11 1
R3 -4 2 -1 -4

Column Minima 3 3 1
Row

0 Strategy of Column Player: 0 0 1

Strategy of Row Player: 1
Value of game = 1
0
Question 1: Solve the following games
(a) Column Player
C1 C2 C3 C4
R1 50 90 18 25
Player
Row

R2 27 5 9 95
R3 64 30 12 20
Solution: Column Player

C1 C2 C3 C4 Row Minima
Column
R1 50 90 18 25 18
Player
Row

R2 27 5 9 95 5
R3 64 30 12 20 12

Column 64 90 18 95
Minima Row

1 Strategy of Column Player: 0 0 1 0

Strategy of Row Player: 0
Value of game = 18
0
 MIXED STRATEGY GAME
(GAME WITHOUT SADDLE POINT)

In some situations, there is no pure strategy (it means no

saddle point in the game), such game are called game
with mixed strategy.
The problem of mixed strategy can be divided into
following categaries:
A. 2 x 2 Game
B. 2 x n Game or m x 2 Game or m x n Game
A. MIXED STRATEGY IN 2 X 2 GAME
In game theory the solution of 2 x 2 game is made arithmetically, which is called
Oddoment method. Following points should be consideration while using oddoment
method:
1. Set the pay off matrix. (Try for the saddle point, if there is no saddle point then use
oddoment method)
2. Find out the positive difference (ignore negative sign) of the entries of each row
and placed at opposite row.
3. Find out the positive difference (ignore negative sign) of the entries of each column
and placed at opposite column.
4. Solution of game:
Column Player
Strategy of Row Player:
b1-b2 : a1-a2 C1 C2 Oddoment
Strategy of Column Player: R1 a1 a2 b1-b2
Player

a2-b2 : a1-b1
Row

a1-a2
Value of Game: R2 b1 b2
Oddoment a2-b2 a1-b1
a1 x b1- b2 + b1 x a1- a2
b1- b2 + a1- a2
Question 14: Solve the following games
Column Player
C1 C2
R1 -3 7

Player
Row
R2 6 1
Solution:
Column Player
C1 C2 Oddoment
R1 -3 7 6-1 = 5
Player
Row

7-(-3) = 10
R2 6 1
Oddoment 7-1 = 6 6-(-3)=9 15

1/3
Strategy of Row Player: 5 : 10 or 1 : 2 or 2/3

Strategy of Column Player: 6 : 9 or 2 : 3 or 2/5 , 3/5

(-3 x 5) + (6 x 10) -15 + 60 45
Value of Game = = = = 3
15 15 15
B. MIXED STRATEGY IN 2 x N / M x 2 / M x N
GAME

A game in which one player has only two strategy and the
opponent has any number of strategy is called a 2 x n game or m x
2 game. And if both player has any number of strategy in a game
then such game called m x n game. If the game has a saddle point
then it can be solved easily other wise the game will be solved by
following methods:
1. Dominance Method
2. Sub-game Method
DOMINANCE METHOD
Under this method game will be reduced to a 2 x 2 game and solved by saddle
point or oddoments method.
General Rues for dominance:
1. If each element of a row of the pay off matrix is less than or equal to the
corresponding element in another row (or average of the corresponding
elements of two or more rows), then the such row is said to be dominated,
therefore such can be deleted from pay off matrix of the game.
2. If each element of a column of the pay off matrix is grater than or equal to
the corresponding element in another column (or average of the
corresponding elements of two or more column), then the such column is
said to be dominated, therefore such can be deleted from pay off matrix of
the game.
3. If the average of two or more strategy is dominated by a single pure
strategy then one of the pure strategies involved in the averaging may be
deleted. The dominance will be decided as per above rules (1 & 2).
After getting 2 x 2 game from the above dominance, it can be solved by
saddle point or oddoment method.
SUB-GAME METHOD
If the game neither have saddle point nor reduced to a 2 x 2 game,
then such game solved by making 2 x 2 sub games and select that
2 x 2 game which have maximum game value.