In game theory, a dominant strategy is one that results in the highest payoff for a player, regardless of what the other players do. This concept is crucial in strategic decision-making, as it allows players to make optimal choices without needing to predict their opponents’ actions. Below are three diverse and practical examples of dominant strategies in different contexts.
In this scenario, two criminals are arrested and interrogated separately. They can either cooperate with each other by remaining silent or betray each other by confessing. The outcome depends on their choices. If both remain silent, they serve a short sentence. If one confesses while the other stays silent, the confessor goes free while the silent accomplice gets a long sentence. If both confess, they both receive moderate sentences.
| Player B (Silent) | Player B (Confess) | |
|---|---|---|
| Player A (Silent) | -1, -1 | -10, 0 |
| Player A (Confess) | 0, -10 | -5, -5 |
The dominant strategy for both players is to confess, as it minimizes their worst-case scenario regardless of the other player’s choice. Even though mutual cooperation yields a better outcome, the fear of betrayal leads them both to confess.
This scenario illustrates how individual rationality can lead to a suboptimal collective outcome, a key issue in social and economic policies.
Consider two firms deciding whether to enter a new market. If both enter, they share the market and earn moderate profits. If one enters and the other stays out, the entering firm earns high profits, while the non-entering firm earns nothing. If both stay out, they forfeit potential profits.
| Firm B (Enter) | Firm B (Stay Out) | |
|---|---|---|
| Firm A (Enter) | 2, 2 | 10, 0 |
| Firm A (Stay Out) | 0, 10 | 5, 5 |
In this case, the dominant strategy for both firms is to enter the market, as it guarantees a better outcome than staying out. However, this leads to intense competition, resulting in lower profits for both firms.
Firms could consider changing their strategies, such as forming a cartel or collaborating, to achieve better outcomes than predicted by pure competition.
In a political election, voters may face a choice between two candidates with differing policies. Voters can either vote for their preferred candidate or vote strategically for a less preferred candidate who has a better chance of winning.
| Voter B (Vote for A) | Voter B (Vote for B) | |
|---|---|---|
| Voter A (Vote for A) | 1, 1 | 0, 2 |
| Voter A (Vote for B) | 2, 0 | 1, 1 |
In this scenario, if Voter A prefers Candidate A but believes Candidate B is likely to win, Voter A’s dominant strategy may be to vote for Candidate B to avoid