Game Theory

Game Theory
A mathematical method of
decision-making in which a
competitive situation is analyzed
to determine the optimal course
of action for an interested party,
often used in political, economic,
Game Theory and military planning. Also called
Game Theory.
Game theory was The games like chess, poker, etc.
developed for decision have the characteristics of
making under conflicting competition and are played
situations where there are according to some definite rules.
one or more opponents
(players).
• The following terminologies are commonly used in
Game theory.
Basic
• Player : Each participant (interested party) of a
game is called a player.
Terminologies • Strategy : The strategy of a player is the

predetermined rule by which a player decides his
course of action from the list of courses of action
during the game. A strategy may be of two types:
• Pure strategy - It is a decision, in advance of all

plays, always to choose a particular course of
action.
• Mixed strategy - It is a decision, in advance of

all plays, to choose a course of action for each
play in accordance with some particular
probability distribution.
• Optimal strategy : The course of action which
maximizes the profit of a player or minimizes his
loss is called an optimal strategy.
• Payoff : The outcome of playing a game is called

payoff.
• Payoff matrix : When the players select their

particular strategies, the payoffs (gains or losses)
can be represented in the form of a matrix called
the payoff matrix.
• Saddle point : A saddle point is an element of the

payoff matrix, which is both the smallest element
in its row and the largest element in its column.
• Value of the game : It refers to the expected

outcome per play when players follow their
optimal strategy.
Zero-sum game
A two-person game has two players. A game
in which one player wins what the other
player loses is called a zero-sum game. The
theory of two-person zero-sum games is the
foundation of more complicated games, such
as games with more than two players (n-
person games), and games in which the
players can benefit through cooperation,
with or without collusion, side payments, or
binding agreements. This introduction is
primarily concerned with two-person zero-
sum games.
The irreconcilable, conflicting interests
between the two players in a zero-sum
game resemble parlor games and military
encounters between enemy states. Players
make moves and counter-moves, until the
rules of engagement declare the game is
ended. The rules of engagement determine
what each player can or must do at each
stage (the available and/or required moves
given the circumstances of the game at this
stage) as the game unfolds.
For example, in the game rock, paper, scissors both
players simultaneously make one move, with rock
beating scissors beating paper beating rock. While
this game consists of only one move, games like
chess require many moves to resolve the conflict.
A player's strategy is defined as a plan of action that determines
the player's move at each stage of the game (depending on the
circumstances of the game at each stage), from the player's first
move all the way to the player's final move. Different ploys for
play produce different strategies. A player's tactics specify a
player's "line of attack/defense" at a particular stage of the
game. Different tactics yield different strategies. Suppose, for
example, players agree to play "ten games" of rock, paper,
scissors, a game of ten moves.
One strategy is the tactic of selecting rock,
paper, or scissors with probability 1/3 at each
of the ten stages. In rapid play, however,
choosing moves at random is difficult.
Consequently, detectable patterns of play could
emerge. Another strategy is the tactic of
replicating the opposing player's previous
move in the 3rd, 7th, and 10th stage (tit-for-tat
tactics), and "going with intuition" at the other
stages. An alternative strategy is the exhaustive
strategy whereby each player's move is
determined, at a given stage, on the network
of all possible moves both players made in the
previous stages. Whether exhaustive strategies
are actually available depends on such factors
as the player's memory and the rate at which
the game is played.
Una empresa compite con otras empresas para conseguir clientes. Tu y tu rival
saben que sus productos estarán obsoletos al final de cada año y deben
determinar simultáneamente si vana contratar publicidad o no. Pero, en la
industria, la publicidad no eleva la demanda total de la industria, sino que induce
a los consumidores a cambiar entre los productos de las distintas empresas.
Tanto la empresa como el competidor contrata publicidad, las dos campañas
publicitarias se compensaran entre si y cada una de las empresas obtendrá 4
millones de beneficios. Si ninguna empresa contrata publicidad, cada una
obtendrá 10 millones de beneficios. Sin embargo, si una contrata publicidad y
otra no, la que contrata obtendrá 20 millones de beneficios y la que no, obtendrá
1 millón de beneficios. ¿Su elección para maximizar los beneficios consiste en
contratar publicidad o no?

Game Theory

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Game Theory

Terminologies • Strategy : The strategy of a player is the

• Pure strategy - It is a decision, in advance of all

• Mixed strategy - It is a decision, in advance of

• Payoff : The outcome of playing a game is called

• Payoff matrix : When the players select their

• Saddle point : A saddle point is an element of the

• Value of the game : It refers to the expected

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