This document provides an overview of game theory. It defines game theory as a theory of decision-making that considers how individuals should make decisions when taking into account the actions of other decision-makers. It outlines some key concepts in game theory, including games, players, strategies, and payoffs. It provides examples of games involving business competition, military conflict, and political campaigns to illustrate game theory concepts.

1. SET 1: AN OVERVIEW Erwin Widodo

2. WHAT
IS
GAME
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3. Game of
skill
Game of
chance
Game of
strategy
Dice, etc P-S-R, etc
Counting, etc

4. THEN,
WHAT
IS
GAME
THEOR
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5. GT IS A THEORY OF DM
GT considers how one should make decisions
Everybody makes decision:
 Deep thought
 Almost automatic
Decision links to goal
 Knowing the consequence of the options
 Decide the goal
 Select the path from the options
An example: a civil engineer to build a bridge

6. WHEN A CHANCE TAKES PLACE
Decision becomes harder to make
Example:
 CS wants to give prompt service
 At the same time also wants to reduce the telephone bill
 But…, how large is the future demand?  chance
 CS doesn’t know how mane telephone line to install
 Historical data + law of probability  balance excessive phone bill & defecting
customer

7. GT IS DESIGNED FOR COMPLEX
SITUATION
The factors involves:
 Options
 Chance
 And …

8. FEW EXAMPLES
Company A and B intend to buy 30 and 24 PC
Salesman P is the supplier for both
Salesman Q is the competitor
If P and Q visit the same company, they divide the sales at that company, but P makes
all sales at the other company
If P and Q visit different company, each makes sales at the company visited
Create the gain matrix for salesman P!
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9. FEW EXAMPLES Salesman Q
Visit A Visit B
Salesman
P
Visit A 39 30
Visit B 24 42
Challenge:
• Analyze the calculation for each cell!
• How can we create gain matrix for
salesman Q?

10. FEW EXAMPLES
General P and Q want to control oil deposits A and B that P now controls. A is 30
acres; B is 24 acres
General Q can only invade 1 area
General P can only defend 1 area
Their strength are matched, so if P and Q deploy their power to the same area, the
result will be stalemate. Each gets half deposit while P retain the control of other area
If they go to different area, each army will control the deposit at each area
Create the oil deposit control matrix for general P!
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11. FEW EXAMPLES General Q
Area A Area B
General P
Area
A 39 30
Area B 24 42
Challenge:
• Analyze the calculation for each cell!
• How can we create gain matrix for
General Q?

12. FEW EXAMPLES
Representative candidate P and Q compete to get delegation support from province A
and B.
P is the favorite. If both candidate visit the same province, then each will get half
delegation and P will get all other province delegation.
If they visit different province, each will get the support from province visited.
A and B have 30 and 24 delegation respectively.
Create the support matrix for candidate P!
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13. FEW EXAMPLES Candidate Q
Province A Province B
Candidate
P
Province
A 39 30
Province
B 24 42
Challenge:
• Analyze the calculation for each cell!
• How can we create gain matrix for
candidate Q?

14. ALTHOUGH THESE THREE EXAMPLES DIFFER – ONE
INVOLVES BUSINESS, ANOTHER IS MILITARY CONFLICT, AND
THE 3RD IS POLITICAL CAMPAIGN – THEY ALL INVOLVE GT
THE DIFFERENCE BETWEEN THESE 3 EXAMPLES AND CIVIL
ENGINEER EXAMPLE:
“WHILE THE DM IS TRYING TO MANIPULATE THE
ENVIRONMENT, THE ENVIRONMENT IS, ON THE
THE CONTRARY,
TRYING TO MANIPULATE THE DM ”
THIS IS THE MAIN CHARACTERISTIC OF GT
INFERENCE

15. 01 02 03 04
15
MAIN
TERMINOLOGY IN
GT
GAME
a certain
situation as the
interaction
background
setting
PLAYER
the DMs in the
game
STRATEGY
decision picked
by DM
PAY OFF
the result of
joint choice in
term of rewards
or punishments

16. GAME
A complete illustration of the competition or cooperation that can be
given as:
G = f(Players,Strategies,Pay off)

17. PLAYER
A participant in the game
Need not to be a single person
If each member of a group has exactly the same feeling about how a
game should turn out, then the members may be considered as a
single player
A player may be: a pair of double tennis player, a football team, a
corporate, a country, etc.

18. STRATEGY
A complete plan of action that describes what a player will do under
all possible circumstances
There are poor and good strategies
In the afore few examples, each player has 2 strategy. However, in
reality games strategies usually are very complex, so that they can
not be explicitly written out. Example: chess games

19. PAY OFF
Advantage or disadvantage within competition or cooperation
Every player has access to it but in different quality and/or quantity
Should be measured in similar unit in all players’ perspective
Common examples of pay off are: profit, cost, market share, risk,
sales, etc.