1: Suppose that a game pays off according to the following table:

This is an example of a zero-sum game with two players. This is zero-sum because one players gain must necessarily be the other players loss. The 3x4 matrix given indicates that Player A has 3 different strategies in this game, and that Player B has 4 strategies. A: Suppose that player A uses strategy i half of the time, strategy iii half of the time, and strategy ii none of the time. Suppose also that player B uses each of the four strategies one fourth of the time. Find the expected payoff of the game. We are given the following:

To find the expected payoff for the given probability distributions, we multiply each possible outcome (represented by entries of the matrix) by the probability of that outcome occurring:

This procedure can be done more generally. If the probability distributions are as follows:

Then the expected payoff can be calculated by:

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This is each outcome multiplied by the probability that that outcome will occur. B: If player B keeps his strategy the same as in part (a), what strategy should player A choose to maximize her expected payoff?

We know that Player Bs strategy will be to give each possible option a probability. Because of this, we can calculate player As expected payoff for each of her 3 strategies:

Player A could choose a mixed strategy, but since strategy ii has the highest expected payoff, she should choose that as her pure strategy. This can be solved in general. If player B chooses the probability distribution

Then the expected payoff for each of player As strategies can be given as:

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Where xi gives the expected payoff for player As ith strategy. If one element of the matrix (matrix) is bigger than the other two, then player A should choose the corresponding strategy as a pure strategy. If more than one element is a maximum for the set {x1, x2, x3}, then player A can choose any pure or mixed strategy involving only the strategies corresponding to the maxima, and she will have the maximum expected payoff. C: If player A keeps her strategy the same as in part (a), what strategy should player B choose to maximize his expected payoff? We know Player As strategy: She will assign a probability of to strategies I and iii, and never use strategy ii. Because of this, we can eliminate the second row from the matrix (Player A never uses it). We can again calculate the expected payoff for each of Player Bs strategies

Because Player B wants to maximize his expected payoff, and this is a zero-sum game, Player B wants to minimize Player As payoff, which the four numbers above represent. Therefore, Player B should use strategy I as a pure strategy in order to maximize his expected payoff (and minimize Player As expected payoff). This can also be seen by employing the concept of dominance. Once row 2 has been eliminated, the payoff matrix is: [ ]

For Player Bs strategy, column I dominates over column j if (equation) for k=1, 2n (where n is the number of rows). By this, it can be seen that column 1 dominates over columns 2, 3, and 4. Therefore, strategy I is always better than strategies ii, iii, and iv. 2: Two clothing stores in a shopping center compete for the weekend trade. On a clear day the larger store gets 60% of the business and on a rainy day the larger store gets 80% of the business. Either or both stores may hold a sidewalk sale on a given weekend, but the decision must be made a week in advance and in ignorance of the competitor's plans. If both have a sidewalk sale, each gets 50% of the business. If, however, one holds the sale and the other doesn't, the one conducting the sale gets 90% of the business on a clear day and 10% on a rainy day. It rains 40% of the time. How frequently should each retailer conduct sales? To make this a zero-sum two player game, we will show a payoff matrix whose elements are the percentages of business that the larger store receives minus 50%. Thus, for example, if both stores conduct sales on a clear day, both stores receive 50% of the business, so the entry in the first column of the first row of the payoff matrix for a clear day is 0. We have the following payoff matrices:

We know that it rains 40% of the time, and because stores decide on sales a week in advance, we assume there is no way to predict the weather on the day of a potential sale. Therefore, we will combine the two matrices together to form one matrix (according to the probability of the weather corresponding to each matrix):

Looking at this matrix from the smaller stores perspective (which wants to minimize the larger stores payoff because this game is zero-sum), you can see that column 1 dominates over column 2. Therefore, the smaller store should go with its first strategy and have street sales all the time. Because of this dominant strategy, the larger store can count on the smaller store having a sale. Therefore, the larger store must choose between an expected payoff of 0 or -8. Because the larger store also wants to maximize profit, it will choose the first option as well. Therefore, both stores will always have sales.