Economics Game Theory Questions Medium
In game theory, a dominant strategy refers to a strategy that provides the highest payoff for a player, regardless of the strategies chosen by other players. It is a strategy that is always the best choice, regardless of the circumstances or actions of other players.
To understand the concept of a dominant strategy, let's consider a simple example of a two-player game called the Prisoner's Dilemma. In this game, two individuals are arrested for a crime and are held in separate cells. They are given the option to either cooperate with each other by remaining silent or betray each other by confessing to the crime.
If both players choose to remain silent, they both receive a relatively low sentence. If both players choose to confess, they both receive a higher sentence. However, if one player confesses while the other remains silent, the player who confesses receives a significantly lower sentence while the other player receives the highest sentence possible.
In this scenario, betraying or confessing is the dominant strategy for each player. Regardless of what the other player chooses, confessing will always result in a lower sentence compared to remaining silent. Therefore, both players have a dominant strategy of confessing, leading to a suboptimal outcome for both.
The concept of a dominant strategy is important in game theory as it helps predict the most likely outcome of a game. When both players have a dominant strategy, it often leads to a Nash equilibrium, where no player has an incentive to deviate from their chosen strategy. However, it is important to note that not all games have a dominant strategy, and players may need to consider other strategies such as mixed strategies or consider the concept of a dominated strategy.