Game theory is a highly useful tool in economics, politics, and social sciences. It is used to analyze the decisions and strategies of different parties in a given situation.

Dominance rule is an important concept in game theory that helps to simplify the analysis of complex situations. In this article, we will discuss how you can use dominance rule in game theory.

What is Dominance Rule?

Dominance rule is a decision-making criterion that helps to identify the best strategy for a player in a game. It involves comparing the payoffs of different strategies for each player and selecting the strategy that yields the highest payoff regardless of what other players do.

Types of Dominance

There are two types of dominance: strict dominance and weak dominance. A strategy is said to be strictly dominant if it yields a higher payoff than any other strategy regardless of what other players do. A strategy is said to be weakly dominant if it yields a higher or equal payoff than any other strategy regardless of what other players do.

Illustration of Dominance Rule

Consider the following example:

Player 1 has two strategies: A and B
Player 2 has two strategies: X and Y

The payoffs for each player are shown in the table below:

X Y
A 5, 2 4, 1
B 2, 4 1, 3

To apply dominance rule, we start by comparing the payoffs of each strategy for each player.

Player 1:

– Strategy A yields a higher payoff than B regardless of what Player 2 does. Therefore, A strictly dominates B for Player 1.

Player 2:

– Strategy X yields a higher payoff than Y regardless of what Player 1 does. Therefore, X strictly dominates Y for Player 2.

After applying dominance rule, the game has been simplified to a single outcome: (A, X). This is the dominant strategy equilibrium and represents the best outcome for both players.

Limitations of Dominance Rule

While dominance rule can be a useful tool in game theory, it has some limitations. It assumes that players are rational and always choose the strategy that yields the highest payoff.

However, in real-world situations, players may not always act rationally or may have incomplete information about other players’ strategies. In such cases, more sophisticated techniques such as Nash equilibrium may be required to analyze the game.

Conclusion

Dominance rule is an important concept in game theory that helps to simplify the analysis of complex situations. While dominance rule has some limitations, it can be a useful tool in many real-world situations where players have complete information and act rationally.