ACKNOWLEDGEMENT

I want to convey my heartfelt gratitude to

my professor, Mr. Devang Padia, for their
support and encouragement in completing
my project. Their expertise in the subject
matter greatly contributed to the depth and
quality of the project.
Also, I would like to express my sincere
gratitude to our Principal, Dr. Seema Pillai,
for his unwavering support and
encouragement throughout this project. I
am grateful for the opportunity to have
worked on this project under her guidance,
and I am confident that my learning and
personal growth have been enriched as a
result.
I would also like to thank my friends, for
their feedback and support. Their input was
invaluable in helping me to develop and
refine my ideas. Lastly, my family’s support
and encouragement were essential
throughout the completion of this project.
 INDEX

Title.
Pg. No.

1. Introduction to Game Theory.

2. Definition of Game Theory.
3. History of Game Theory.
4. Assumptions of Game Theory.
5. Types of Game Theory.
6. Pure and mixed strategies.
7. Classification of game theory.
 Introduction to Game
Theory

 Game theory is a study of how to

mathematically determine the best
strategy for given conditions in order to
optimize the outcome.
 In game theory, there are two or more
decision makers, called players, who
compete as adversaries against each
other.
 It is assumed that each player has the
same information and will select the
strategy that provides the best possible
outcome from his point of view.
 Each player selects a strategy
independently without knowing in advance
the strategy of the other player(s).
 The combination of the competing
strategies provides the value of the game
to the players.
 Game models classification according to:
number of players, sum of all payoffs,
number of strategies employed.
 Examples of competing players are teams,
armies, companies, political candidates,
and contract bidders.
Definition of Game Theory

 The interactive situation, specified by the

set of participants, the possible courses of
action of each agent, and the set of all
possible utility payoffs, is called a game;
the agents ‘playing’ a game are called the
players.
 In a competitive situation the course of
action (alternatives) for each competitor
may be either finite or infinite. A
 competitive situation will be called
“Game”.

History of Game Theory

The history of Game Theory traces its roots

to the early 20th century and has evolved
significantly over time. Here’s a brief
timeline.

1. Early Foundations (1990s).

Émile Borel (1921): The concept of
game theory began to take shape with
French mathematician Émile Borel, who
explored the idea of optimal strategies in
games of chance, laying the groundwork
for modern game theory.

2. John von Neumann and Oskar

Morgen-
Term (1944).
The formal foundation of game theory
was established with the publication of
 “Theory of Games and Economic
Behavior” by John von Neumann and
Oskar Morgenstern. Von Neumann’s
earlier work in game theory, especially
on two-person zero-sum games, was
crucial, and this book extended the
study to economics and social sciences.
3. Nash Equilibrium (1950s).
In 1950, American mathematician John
Nash developed the concept of the
Nash Equilibrium, a key contribution
that changed game theory. It describes a
situation where no player can benefit by
changing their strategy while the other
players keep their strategies unchanged.
Nash’s work earned him the Nobel Prize
in Economic Sciences in 1994.

4. Evolutionary Game Theory

(1970s).
John Maynard Smith and George R.
Price applied game theory to
evolutionary biology in the 1970s,
creating evolutionary game theory.
This approach helped explain how
 certain behaviours, such as cooperation
and altruism, can evolve in animal
populations through natural selection.

5. Development and
Expansion(1980s-
Present).
 Throughout the late 20th century and into
the 21st century, game theory has
expanded into a variety of disciplines,
including political science, psychology,
computer science, and artificial
intelligence.
 Game theory applications have been
crucial in understanding market
competition, auction design,
international relations, and conflict
resolution.

Today, game theory continues to be a vital

tool in economics, business strategy, policy-
making, and beyond, offering insights into
strategic decision-making in situations of
interdependence.

Assumptions of Game
Theory.

1) Each decision maker has available to

him two or more well-specified choices or
sequences of choices.

2) Every possible combination of plays

available to the players leads to a well-
defined end-state (win, loss, or draw) that
terminates the game.
3) A specific Payoff for each player is
associated with each end- state.

4) Each decision maker has perfect

knowledge of the game and of his
opposition.

5) All decision makers are rational, that is,

each player, given two alternatives, will
select the one that yields him the greater
payoff.

Types of Game Theory

Game theory in operational research

analyzes strategic interactions among
decision-makers, or “players,” in situations
where their actions affect each other.
Various types of game theory approaches
are applied based on the scenario. Here are
the key types.
1) Cooperative Game Theory.
Description: Focuses on scenarios
where players can form coalitions and
make binding agreements to achieve
better outcomes collectively.

Application:-
 Allocation of resources.
 Profit- sharing in joint ventures.
 Transportation and logistics
network optimization.

2) Non-Cooperative Game
Theory.
Description: Deals with situations
where players act independently and
cannot form binding agreements.
Application:-
 Competitive market analysis.
 Conflict resolution.
  Supply chain management with
competing firms.

3) Zero-sum Game.
Description: A game where one
player’s gain is
Exactly equal to the other player’s loss.

Application:-
 Military strategy and defense
planning.
 Pricing strategies in competitive
markets.
 Decision making under strict
competition.

4) Non-zero-sum Games.
Description: player’s gains and
losses are not
Strictly opposing, allowing for win- win
or lose-
Lose scenarios.
 Application:-
 Negotiations and collaboration.
 Environmental sustainability
strategies.
 Multi – objective optimization in
supply chains.

5) Symmetric and Asymmetric

Games.
 Symmetric Games:-
 Players have identical strategies and
payoffs.
 Example:- Resource allocation with
uniform rules.
 Asymmetric Games.
 Players have different roles,
strategies, or payoffs.
 Example:- Leader follower dynamics
in supply chain management.
6) Static and Dynamic Game.
 Static Games:-
  All players make decisions
simultaneously without knowing the
others actions.
 Example:- price setting in markets.
 Dynamic Games:-
 Decisions are made sequentially,
consideration past moves.
 Example:- project scheduling and
bidding processes.

7) Perfect and Imperfect

information
Games.
 Perfect information:-
 All players know the history and
current state of the game.
 Example:- chess like logistics
planning.
 Imperfect information:-
 Players have incomplete or uncertain
information.
 Example:- competitor analysis in
uncertain markets.
 Pure strategy and mixed
strategy.

In game theory, strategies are the plans or

actions players use to achieve the best
possible outcome. These strategies are
categorized as pure strategies and mixed
strategies.

A. Pure strategy.
 A pure strategy involve selecting a
specific action with certainty.
 The player always follow the same
course of action every time the game is
played, regardless of the situation.
 It represents a clear, deterministic
choice.

Example:-
In a game of Rock-paper-scissors, if a player
always chooses “Rock,” this is a pure
strategy.
B. Mixed strategy.
 A mixed strategy involves selecting
actions probabilistically, assigning a
probability to each available action.
 Players do not commit to a single action
but instead randomize their choices.
 The randomness helps to avoid
predictability, especially when the
opponents are rational and strategic.

Example:-
In Rock-Paper-Scissors, if a player chooses
“Rock” 50% of the time, “Paper” 25% of the
time, and “Scissors” 25% of the time, this is
a mixed strategy.
 Practical use to pure and
mixed
Strategies.

 Pure strategies are suitable for simple

games or situations where one action
clearly outperforms others.

 Mixed strategies are essential in

competitive, complex, or zero-sum
games where unpredictability is key.
 Classification of game
theory

It broadly classified into three main sub-

categories of study.

1. Classical game theory

It focuses on optimal play in situations
where one or more people must make a
Decision and the impact of that decision
and the decisions of those involved is
known.
Decisions may be made by use of a
randomizing device like piping a coin .
It focuses on questions like, What is my
best decision in a given economic
Scenario, where a reward function
provides a way for me to understand how
my Decision will impact my result.
Examples:-
Poker, strategic military decision
making, Negotiations.
2. Combinatorial game theory
It focuses on optimal play in two-player
games in which each player takes turns
changing in pre-defined ways. In other
word, combinatorial game theory does not
consider games with chance (no
randomness).
Generally two player strategic games
played on boards. Moves change the
Structure of a game board.

Examples:-
Chess, Checkers, Go.

3. Dynamic game theory

It focuses on the analysis of games in
which players must make decisions over
time and in which those decisions will
affect the outcome at the next moment in
time.
It often relies on differential equations to
model the behaviour of players over time.
It can help optimize the behaviour of
unmanned vehicles or it can help you
capture your baby sister who has escaped
from her playpen.
In general games with time, Games with
motion or a dynamic component.

Examples:-
Optimal Play in a dog fight,
Chasing you brother across a room.
 Conclusion

There are many advances to this theory to

help describe and prescribe the right
strategies in many different situations.
Although the theory is not complete, it has
helped and will continue to help many
people, in solving strategic games.