TITLE: APPLICATION OF SIMPLEX METHOD IN GAME THEORY

Introduction
Game theory is the study of human conflict and cooperation within a competitive
situation. In some respects, game theory is the science of strategy, or at least the optimal
decision-making of independent and competing actors in a strategic setting. Game theory
enables us to understand the actions of two or more individuals or organisations that
compete with one another, where the competitive decisions need to take account of the
responses of the opponents.

Game theory is applied in various areas of study to understand why an individual makes
a particular decision and how the decisions made by one individual affect others. Game
theory employs games of strategy (such as chess) but not of chance (such as rolling a dice).
A strategic game represents a situation where two or more participants are faced with
choices of action, by which each may gain or lose, depending on what others choose to do
or not to do. The final outcome of a game, therefore, is determined jointly by the strategies
chosen by all participants. These are also situations of uncertainty because no participant
knows for sure what the other participants are going to decide.

In a two-person zero sum game, each of the two players is given a choice between
several prescribed strategies at each turn, and each players gain is equal to the other
players loss. The sum of the gains by the two players is zero.

The graphical method or simplex algorithm may be used depending on the order of the
pay-off matrix. As a special case, a mixed strategy can be the deterministic choice of one
of the given pure strategies.

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Methodology
The pay-off matrix of a two-person zero sum game has rows labeled by the row player's
strategies and columns labeled by the column player's strategies. The ij entry of the matrix
is the pay-off that accrues to the row player in the event that the row player uses strategy i
and the column player uses strategy j.

For solving two-person zero-sum games we find the Row Minimum (Maximin) and
Column Maximum (Minimax) values. These values provide us with the value of the game
and determine of a saddle point is present in the game or not. In case the saddle point is
found in a game the game is bound to have been played by a pure strategy which would
minimize the losses of each player and maximize their profits correlating each other. This
saddle point also represents the Nash Equilibrium that will be present in the game. The
Nash equilibrium in any game can be achieved by elimination of the unfeasible moves for
each player.

The position of the entry in the pay-off matrix where the maximum of the row
minimums equals the minimum of column maximums is called a saddle point. When a
saddle point exists, the game is said to be stable, and the pay-off at the saddle point is called
the value of the game.

If no saddle point is found in a game there is no single safest strategy for each player.
In this case a mixture of strategies is used. The optimal mixed strategy for each player can
be determined by two methods, the graphical method or simplex method.

The results of the mixed strategies for 2 2 pay-off matrix solve by graphical method
and simplex method will be compared. By comparing the two methods, comment is given
in solving the two-person zero sum games.

Lastly, a 3 3 pay-off matrix, without any dominant rows or columns, which has no
saddle point is constructed. The 3 3 pay-off matrix can only solve by simplex method.

2
Result
4 3 1
1. ( )
0 1 2

First of all, we need to determine the value of row minimum for Player A and also
determine the value of column maximum for Player B. Then we obtained
Player B Row
Y1 Y2 Y3 minimum
Player A X1 4 3 1 1
X2 0 1 2 0
Column maximum 4 3 2

Since Player A and Player B are playing a play-safe game, they have to choose a play-
safe strategy to minimise their risk in the game. Thus, Player A will choose strategy X1
with the value of 1, which is the maximum of row minimum. However, Player B will
choose strategy Y3 with the value of 2, which is the minimum of column maximum. It is
noticed that the minimum of the column maximum is not equal to the maximum of row
minimum. Therefore, this game that both players use play-safe strategies does not have a
stable solution. In this case, it does not have any saddle point. Mixed strategy will be
used to determine the optimal mixed strategy for each player.

Graphical method
Suppose that Player A chooses X1 strategy with probability p and X2 strategy with
probability (1 - p).
The expected pay-off for Player A based on the strategies used by Player B are as
follows:

Strategy of Player B Expected pay-off

Y1 E(p) = 4p+0(1-p) = 4p
Y2 E(p) = 3p+1(1-p) = 2p+1
Y3 E(p) = p+2(1-p) = -p+2

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The expected pay-offs are plotted as functions of p, for 0 1, as shown below.
Expected pay-off

0 1 p

4p = -p+2
5p = 2
2
p=5

We conclude that optimal mixed-strategy for Player A is to choose X1 strategy with

2 3
probability 5 and X2 strategy with probability 5.
2 8
The value of the game = 4(5) = 5

To find the corresponding optimal mixed-strategy for Player B, probabilities q1, q2 and q3
are assigned to Y1, Y2 and Y3 strategies respectively. Since the expected pay-offs for
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Player A is 5.
8
-4q1 - 3q2 - q3 = 5
8
and -q2 - 2q3 = 5

We also have q1 + q2 + q3 = 1
1 4
Solving these three equations, q1 = 5, q2 = 0, q3 = 5.

We conclude that the optimal mixed-strategy for Player B is to use Y1 strategy with
1 4
probability 5 and Y3 strategy with probability 5, without using Y2 strategy.

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 Simplex method

Player B
Y1 Y2 Y3
Player X1 4 3 1 1
A X2 0 1 2 1
-1 -1 -1 0

Y1 Y2 Y3

X1 4 1 1 1
3 3 3 3
X2 4 1 5 2

3 3 3 3
1 1 2 1

3 3 3 3

Y1 X1 Y3

Y2 4 1 1 1
3 3 3 3
X2 4 1 5 2

3 3 3 3
1 1 2 1

3 3 3 3

Y1 X1 Y3

Y2 8 2 1 1

5 5 5 5
X2 4 1 3 2

5 5 5 5
1 1 2 3

5 5 5 5

5
 Y1 X1 X2

Y2 8 2 1 1

5 5 5 5
Y3 4 1 3 2

5 5 5 5
1 1 2 3

5 5 5 5

Y1 X1 X2

Y2 5 1 1 1

8 4 8 8
Y3 1 0 1 1
2 2 2
1 1 3 5
8 4 8 8

Y2 X1 X2

Y1 5 1 1 1

8 4 8 8
Y3 1 0 1 1
2 2 2
1 1 3 5
8 4 8 8
1 8
Expected value of the game = 5 =
5
8
1
4 2
Optimal strategy for Player A, X1 = 5 =
5
8
3
8 3
X2 = 5 =
5
8
We conclude that optimal mixed-strategy for Player A is to choose X1 strategy with
2 3
probability 5 and X2 strategy with probability 5.

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 1
8 1
Optimal strategy for Player B, Y1 = 5 =
5
8
0
Y2 = 5 = 0
8
1
2 4
Y3 = 5 =
5
8
We conclude that the optimal mixed-strategy for Player B is to use Y1 strategy with
1 4
probability 5 and Y3 strategy with probability 5, without using Y2 strategy.

4 1 0
2. (1 2 5)
3 1 2

+2

6 3 2
(1 4 7)
5 1 4
Player B
Y1 Y2 Y3
Player X1 6 3 2 1
A X2 1 4 7 1
X3 5 1 4 1
-1 -1 -1 0

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 Y1 Y2 X2

X1 40 13 2 5

7 7 7 7
Y3 1 4 1 1
7 7 7 7
X3 31 9 4 3

7 7 7 7
6 3 1 1

7 7 7 7

X3 Y2 X2

X1 40 109 14 5

31 31 31 31
Y3 1 19 5 4

31 31 31 31
Y1 7 9 4 3

31 31 31 31
6 21 1 7

31 31 31 31

X3 X1 X2

Y2 40 31 14 5

109 109 109 109
Y3 21 19 9 11

109 109 109 109
Y1 13 9 10 12

109 109 109 109
6 21 13 28

109 109 109 109

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 Y3 X1 X2

Y2 40 1 2 5

21 21 7 21
X3 109 19 3 11

21 21 7 21
Y1 13 4 1 1

21 21 7 21
2 1 1 2
7 7 7 7

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Expected value of the game = 2
2
3
=
2
1
7 1
Optimal strategy for Player A, X1 = 2 =
2
7
1
7 1
X2 = 2 =
2
7
0
X3 = 2 = 0
7
We conclude that optimal mixed-strategy for Player A is to choose X1 strategy with
1 1
probability 2 and X2 strategy with probability 2, without using X3 strategy.

1
21 1
Optimal strategy for Player B, Y1 = 2 =
6
7
5
21 5
Y2 = 2 =
6
7

9
 0
Y3 = 2 = 0
7
We conclude that the optimal mixed-strategy for Player B is to use Y1 strategy with
1 5
probability 6 and Y2 strategy with probability 6, without using Y3 strategy.

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Conclusion
From this assignment, for any pay-off matrix without any dominant rows or columns
and saddle point, the optimal mixed strategies for each player can be determined using
either a graphical method or simplex algorithm. Since the optimal strategies for both the
players assign non-zero probabilities to the same number of pure strategies, it is obvious
that if one player has only two strategies the other will also use two strategies. Graphical
method is helpful in finding out which of the two strategies can be used. A comparison can
be made between the solutions available in determining optimal strategies and pay-offs, in
two person zero-sum matrix games. The solutions of games with saddle point are simple
to solve, as are two by two matrix games with no saddle points. However 2*N and M*2
(and effectively M*N) matrix games are not so simple to solve as with the graphical method,
there is no algorithm presently available. Although there is no algorithm available to
compute optimal strategies and payoffs in N*M matrix games, linear programming is an
avenue that can be explored, as the simplex method can be applied to determine optimal
strategies and payoffs in N*M matrix games. Simplex method is easy to solve game
problem which does not have a saddle point. It is powerful method to reduce number of
iterations and save valuable time. As conclusion simplex method is the useful tool to solve
the pay-off matrix with higher dimension which cannot solve by graphical method.

Reference

1. http://www.investopedia.com/terms/g/gametheory.asp
2. https://en.wikipedia.org/wiki/Game_theory
3. PRE-U STPM Text MATHEMATICS (M) PELANGI 2014

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