Chapter 10 Game theory.ppt

Game Theory Two or more decision makers simultaneously choose an action, and the action chosen by each player affects the rewards earned by the other players. Two-Person Zero-Sum and Constant-Sum Games: Saddle Points Characteristics of Two-Person Zero-Sum Games Such a game is called a two-person zero-sum game, which is represented by the matrix in the following Table (the game’s reward matrix). Basic Assumption of Two-Person Zero-Sum Game Theory If a two-person zero-sum game has a saddle point, the row player should choose any strategy (row) attaining the maximum on the left side of (1). The column player should choose any strategy (column) attaining the minimum on the right side of (1). A saddle point can also be thought of as an equilibrium point in that neither player can benefit from a unilateral change in strategy. Many two-person zero-sum games do not have saddle points. Two Person Constant-sum Games A two-person constant-sum game is a two-player game in which, for any choice of both player’s strategies, the row player’s reward and the column player’s reward add up to a constant value c. Example: Networks Competition During the 8 to 9 P.M. time slot, two network are vying for an audience of 100 million viewers. The networks must simultaneously announce the type of show they will air in that time slot. Two-Person Zero-Sum Games Randomized Strategies and Graphical Solution Example: Odds and Evens. Two players (called Odd and Even) simultaneously choose the number of fingers (1 or 2) put out. If the sum of the fingers put out by both players is odd. Odd wins $1 from Even. If the sum of the fingers is even. Even wins $1 from Odd. We consider the row player to be Odd and the column player to be Even. Determine whether this game has a saddle point. Mixed Strategy and Pure Strategy Example: Bet Coin A fair coin is tossed, and the result is shown to player 1. Player 1 must then decide whether to pass or bet. If player 1 passes, he