Dominated Strategy

Definition

A dominated strategy is a choice in game theory that is worse than another strategy available to a player, regardless of what the other players do. This means that there exists at least one other strategy that always provides a higher payoff, making the dominated strategy less appealing. Identifying dominated strategies helps in simplifying games by allowing players to discard inferior options and focus on more optimal choices.

5 Must Know Facts For Your Next Test

1. Dominated strategies can be either weakly or strictly dominated; weakly dominated strategies may perform equally in some cases, while strictly dominated strategies perform worse in all scenarios.
2. In iterative elimination of dominated strategies, players repeatedly remove strategies that are dominated until no more dominated options exist, simplifying decision-making.
3. Removing dominated strategies can lead to a reduced strategy set, making it easier to find Nash equilibria in complex games.
4. A player's rational choice will never include a dominated strategy since they can achieve better outcomes with alternative strategies.
5. Understanding dominated strategies is crucial for predicting the behavior of rational players in competitive situations.

Review Questions

• How does identifying a dominated strategy impact a player's decision-making process?
  • Identifying a dominated strategy allows a player to eliminate less favorable choices from their decision-making process, leading them to focus on strategies that could yield better payoffs. By recognizing which strategies are inferior regardless of opponents' actions, players can simplify their options and increase their chances of achieving a favorable outcome. This streamlining process is particularly helpful in complex games with multiple strategies.
• Discuss how the concept of dominated strategies is related to finding Nash equilibria in games.
  • The concept of dominated strategies plays a vital role in finding Nash equilibria because removing these inferior options helps narrow down the possible strategies players may choose. By eliminating dominated strategies iteratively, players can focus on the remaining strategies that are more likely to lead to stable outcomes. Consequently, this reduction simplifies the analysis of the game and enhances the identification of Nash equilibria where players’ best responses align with one another.
• Evaluate the implications of dominated strategies in real-world competitive situations, such as market competition or negotiations.
  • In real-world competitive situations like market competition or negotiations, recognizing and eliminating dominated strategies can significantly affect outcomes. Businesses or negotiators who identify inferior options will avoid them, leading to more strategic decisions that maximize benefits. This understanding fosters better strategic planning and can shift the dynamics of competition, ultimately influencing market behavior and negotiation results as firms aim to adopt dominant or best-response strategies.

Related terms

Nash Equilibrium:

A situation in a game where no player can benefit by changing their strategy while the other players keep theirs unchanged.

Strictly Dominated Strategy: A strategy that is worse than another strategy in every possible scenario, making it unconditionally inferior.

Best Response:

The strategy that yields the highest payoff for a player, given the strategies chosen by the other players.