Methods for determining optimal mixed strategies in matrix games with correlated random payoffs

V. A. Gorelik ; T. V. Zolotova

Čebyševskij sbornik, Tome 24 (2023) no. 4, pp. 33-47

Résumé

A game with nature for known state probabilities is considered. An optimality principle is proposed for decision-making for games with nature, based on efficiency and risk estimates. In contrast to the traditional approach to the definition of a mixed strategy in game theory, this paper considers the possibility of correlation dependence of random payoff values for initial alternatives. Two variants of the implementation of the two-criteria approach to the definition of the optimality principle are suggested. The first option is to minimize the variance as a risk estimate with a lower threshold on the mathematical expectation of the payoff. The second option is to maximize the mathematical expectation of the payoff with an upper threshold on the variance. Analytical solutions of both problems are obtained. The application of the obtained results on the example of the process of investing in the stock market is considered. An investor, as a rule, does not form a portfolio all at once, but as a sequential process of purchasing one or another financial asset. In this case, the mixed strategy can be implemented in its immanent sense, i.e. purchases are made randomly with a distribution determined by the previously found optimal solution. If this process is long enough, then the portfolio structure will approximately correspond to the type of mixed strategy. This approach of using the game with nature, taking into account the correlation dependence of random payoff of pure strategies, can also be applied to decision-making problems in other areas of risk management.

Détail

Keywords: risk management, optimality principle, two-criteria approach, mathematical expectation, standard deviation.