Dominant Strategy Equilibria

Sanjay Singh

1
Department of Information and Communication Technology
Manipal Institute of Technology, MAHE
Manipal-576104, INDIA
sanjay.singh@manipal.edu
2
Centre for Artificial and Machine Intelligence (CAMI)
MAHE, Manipal-576104, INDIA

March 17, 2021

Sanjay Singh Dominant Strategy Equilibria

Module Objectives

In this module we’ll study following notions:

Dominated strategies
Dominant strategies, and
Dominant strategy equilibria
We’ll explore three categories of dominance:
strong
weak
very weak

Sanjay Singh Dominant Strategy Equilibria

Definition (Strong Dominated Strategy)
Given a strategic form game Γ = hN, (Si ), (ui )i, a strategy si ∈ Si
of player i is said to be strongly dominated by another strategy
s0i ∈ Si if
ui (s0i , s−i ) > ui (si , s−i ) ∀s−i ∈ S−i .

We say that s0i strongly dominates si

Here, player i will always prefer to play strategy s0i over
strategy si

Sanjay Singh Dominant Strategy Equilibria

Definition (Strongly Dominant Strategy)

A strategy s∗i ∈ Si is said to be a strongly dominant strategy for
player i if it strongly dominates every other strategy si ∈ Si . That
is ∀si 6= s∗i ,
ui (s∗i , s−i ) > ui (si , s−i ) ∀s−i ∈ S−i .

Definition (Strongly Dominant Strategy Equilibrium)

A strategy profile s∗1 , . . . , s∗n is called a strongly dominant
strategy equilibrium of the game Γ = hN, (Si ), (ui )i if,
∀i = 1, 2, . . . , n, the strategy s∗i is a strongly dominant strategy
for player i.

Sanjay Singh Dominant Strategy Equilibria

Example (Prisoner’s Dilemma)
Here N = {1, 2} and S1 = S2 = {C, NC} and the payoff matrix is given by

2
1
NC C
NC -2,-2 -10,-1
C -1,-10 -5,-5

Strategy NC is strongly dominated by strategy C for player 1 since

u1 (C, NC) = −1 > u1 (NC, NC) = −2, and
u1 (C, C) = −5 > u1 (NC, C) = −10
Similarly, the strategy NC is strongly dominated by strategy C for player
2 since
u2 (NC, C) = −1 > u2 (NC, NC) = −2, and
u2 (C, C) = −5 > u2 (C, NC) = −10
C is a strongly dominant strategy for both players
Hence, (C,C) is a strongly dominant strategy equilibrium for this game

Sanjay Singh Dominant Strategy Equilibria

If a rational player has a strongly dominant strategy then

we should expect the player to choose that strategy
If a player has a strongly dominated strategy, then we
should expect the player not to play it

Sanjay Singh Dominant Strategy Equilibria

Definition (Weakly Dominated Strategy)
A strategy si ∈ Si is said to be weakly dominated by strategy s0i ∈ Si for
player i if
ui (s0i , s−i ) ≥ ui (si , s−i ) ∀s−i ∈ S−i
and
ui (s0i , s−i ) > ui (si , s−i ) for some s−i ∈ S−i .
The strategy s0i is said to weakly dominate strategy si . Here strict
inequality is to be satisfied for at least one s−i .

Definition (Weakly Dominant Strategy)

A strategy s∗i is said to be a weakly dominant strategy for player i if it
weakly dominates every other strategy si ∈ Si .

Definition (Weakly Dominant Strategy Equilibrium)

Given a game Γ = hN, (Si ), (ui )i, a strategy profile (s∗1 , . . . , s∗n ) is called
a weakly dominant strategy equilibrium if, ∀i = 1, . . . , n, the strategy s∗i
is a weakly dominant strategy for player i.

Sanjay Singh Dominant Strategy Equilibria

Example (Prisoner’s Dilemma)

Consider a payoff matrix for a modified version of prisoner’s dilemma
problem

2
1
NC C
NC -2,-2 -10,-2
C -2,-10 -5,-5

Strategy NC is weakly dominated by strategy C for player 1 since

u1 (C, NC) = −2 ≥ u1 (NC, NC) = −2, and
u1 (C, C) = −5 > u1 (NC, C) = −10
Similarly, the strategy NC is weakly dominated by strategy C for
player 2 since
u2 (NC, C) = −2 ≥ u2 (NC, NC) = −2, and
u2 (C, C) = −5 > u2 (C, NC) = −10
So C is a weakly dominant strategy for both players
Hence, the strategy profile (C,C) is a weakly dominant strategy
equilibrium for this game
Sanjay Singh Dominant Strategy Equilibria
Definition (Very Weakly Dominated Strategy)
A strategy si ∈ Si is said to be very weakly dominated by a strategy
s0i ∈ Si for a player i if

ui (s0i , s−i ) ≥ ui (si , s−i ) ∀s−i ∈ S−i .

The strategy s0i is said to very weakly dominate strategy si . Here, strict
inequality need not be satisfied for any s−i unlike in the case of weak
dominance where strict inequality must be satisfied for at least one
s−i .

Definition (Very Weakly Dominant Strategy)

A strategy s∗i is said to be a very weakly dominant strategy for player i
if it very weakly dominates every other strategy si ∈ Si .

Definition (Very Weakly Dominant Strategy Equilibrium)

A strategy profile (s∗1 , . . . , s∗n ) is called a very weakly dominant
strategy equilibrium if, ∀i = 1, . . . , n, the strategy s∗i is a very weakly
dominant strategy for player i.

Sanjay Singh Dominant Strategy Equilibria

Example (Prisoner’s Dilemma)

Consider a payoff matrix for a modified version of prisoner’s
dilemma problem

2
1
NC C
NC -2,-2 -5,-2
C -2,-10 -5,-10

In this game, strategy C and NC are very weakly dominant

strategies for both players
Each of the four strategy profile constitutes a very weakly
dominant strategy equilibrium

Sanjay Singh Dominant Strategy Equilibria

 Dominant Strategy Equilibria
Tragedy of Commons

N = {1, 2, . . . , n}, S1 = S2 = · · · = Sn = {0, 1}

Strategy 1 corresponds to keeping a sheep and 0
corresponds to no keeping a sheep
Keeping a sheep gives a benefit of 1
When a sheep is kept, damage to the environment is 5
The damage is equally shared by all farmers
n  
5X n−5 5X
ui (s1 , . . . , sn ) = si − sj = si − sj
n n n
j=1 j6=i

Case 1: n < 5. Given any s−i ∈ S−i ,

5X
ui (0, s−i ) = − sj
n
j6=i
 
n−5 5X
ui (1, s−i ) = − sj
n n
j6=i

Sanjay Singh Dominant Strategy Equilibria

 
n−5
Since n < 5, < 0, therefore,
n
ui (0, s−i ) > ui (1, s−i ) ∀s−i ∈ S−i
It is seen that (0, 0, . . . , 0) is a strongly dominant strategy
equilibrium
There is no incentive for a farmer to keep a sheep
5X
Case 2: n = 5, here ui (0, s−i ) = ui (1, s−i ) = − sj
n
j6=i
Therefore, ui (0, s−i ) = ui (1, s−i ) ∀s−i ∈ S−i
None of the strategies is a weakly dominant strategy or a
strongly dominant strategy
However, each of the strategies is clearly a very weakly
dominant strategy for each player
Every strategy profile is a very weakly dominant strategy
equilibrium

Sanjay Singh Dominant Strategy Equilibria

 5X
Case 3: n > 5, ui (0, s−i ) = − sj
n
j6=i
 
n−5 5X
ui (1, s−i ) = − sj
n n
j6=i
 
n−5
Since n > 5, > 0, and therefore
n
ui (0, s−i ) < ui (1, s−i ) ∀s−i ∈ S−i
Hence, (1, 1, . . . , 1) is a strongly dominant strategy
equilibrium
Thus, if n > 5, it is best for all the farmers to keep a sheep

Sanjay Singh Dominant Strategy Equilibria

If the government decides to impose a pollution tax of 5

units for each sheep kept, we have
n n
5X 5 5X
ui (s1 , . . . , sn ) = si − 5si − sj = −4si − si − sj
n n n
j=1 j6=i

n
5X
We note that ui (0, s−i ) = − sj
n
j6=i

n
5 5X
ui (1, s−i ) = −4 − − sj
n n
j6=i

It means whatever be the value of n, the profile (0, 0, . . . , 0)

is a strongly dominant strategy equilibrium
It is a tragic situation for the farmers

Sanjay Singh Dominant Strategy Equilibria

Braess Paradox

Figure 1: Transportation network with four Figure 2: Transportation network with an

nodes extra link

Sanjay Singh Dominant Strategy Equilibria


−25 − nA (s1 , . . . , sn ) if si = A

ui (s1 , . . . , sn ) = 50
−25 − n B (s 1 , . . . , sn )
if si = B

50
ui (A, A, . . . , A) = ui (B, B . . . , B) = −45, and
ui (s1 , s2 , . . . , sn ) = −35 when nA (s1 , . . . , sn ) = nB (s1 , . . . , sn ) = 500
Lets introduce a fast link from A to B with zero latency
Now we have, S1 = S2 = · · · = Sn = {A, B, AB}
nA (s1 , . . . , sn ) + nAB (s1 , . . . , sn )
ui (s1 , . . . , sn ) = −25 − if si = A
50
nB (s1 , . . . , sn ) + nAB (s1 , . . . , sn )
= −25 − if si = B
50
nA (s1 , . . . , sn ) + nAB (s1 , . . . , sn )
=− − if si = AB
50
nB (s1 , . . . , sn ) + nAB (s1 , . . . , sn )
−
50

Sanjay Singh Dominant Strategy Equilibria

 It can be shown that, for every player i, that

ui (AB, s−i ) > ui (A, s−i ) ∀s−i ∈ S−i

ui (AB, s−i ) > ui (B, s−i ) ∀s−i ∈ S−i

It shows that (AB, AB, . . . , AB) is a strongly dominant
strategy equilibrium
The above equilibrium profile leads to a total delay of 40
mins
However, if 500 vehicles uses strategy A and another 500
vehicles uses strategy B, the total delay for each vehicle is
only 35 mins
Paradox here is that the introduction of an additional link
forces the strategy AB on every vehicle (AB being the
strongly dominant strategy for each vehicle) thereby
leading a delay that is higher than what it would be for a
non-equilibrium profile
Sanjay Singh Dominant Strategy Equilibria

Second Price Sealed Bid Auction

Let b1 , . . . , bn be the bids (strategies)

Assume that vi , bi ∈ (0, ∞) for i = 1, 2, . . . , n
Item is awarded to the bidder who has lowest index among
all the highest bidders, the allocation function is given by
(
1 if bi > bj for j = 1, . . . , i − 1; bi ≥ bj for j = i + 1, . . . , n
yi (b1 , . . . , bn ) =
0 otherwise

The payoff for each bidder is given by

ui (b1 , . . . , bn ) = yi (b1 , . . . , bn )(vi − ti (b1 , . . . , bn ))

where ti (b1 , . . . , bn ) is the amount to be paid by bidder i if

he is the winning bidder
Being the second price auction, the winner pays the next
highest bid

Sanjay Singh Dominant Strategy Equilibria

 Consider bidder 1
We’ll show that the strategy profile (b1 , . . . , bn ) = (v1 , . . . , vn ) is a
weakly dominant strategy equilibrium for this game
We’ll consider the following cases:
Case 1: v1 ≥ max(b2 , . . . , bn ), there are two sub-cases here
b1 ≥ max(b2 , . . . , bn ) and b1 < max(b2 , . . . , bn )
Case 2: v1 < max(b2 , . . . , bn ), there are two sub-cases here
b1 ≥ max(b2 , . . . , bn ) and b1 < max(b2 , . . . , bn )
Case 1: v1 ≥ max(b2 , . . . , bn ), we look at the following scenarios
Let b1 ≥ max(b2 , . . . , bn ), which means bidder 1 is the
winner, which implies that u1 = v1 − max(b2 , . . . , bn ) ≥ 0
Let b1 < max(b2 , . . . , bn ), which means bidder 1 is not the
winner, which implies that u1 = 0
Let b1 = v1 , then since v1 ≥ max(b2 , . . . , bn ), we have
u1 = v1 − max(b2 , . . . , bn )
Hence, if v1 = b1 , the utility u1 is the maximum utility obtainable
Whatever be numerical values of b2 , . . . , bn , it is best response
for player 1 to bid v1
Thus, b1 = v1 is a very weakly dominant strategy for bidder 1
Sanjay Singh Dominant Strategy Equilibria

Case 2: v1 < max(b2 , . . . , bn ), we look at the following scenarios

Let b1 ≥ max(b2 , . . . , bn ), which means bidder 1 is the
winner, and the payoff is given by
u1 = v1 − max(b2 , . . . , bn ) < 0
Let b1 < max(b2 , . . . , bn ), which means bidder 1 is not the
winner, and the payoff is given by u1 = 0
If b1 = v1 , then bidder 1 is not the winner and u1 = 0
From these analysis, it is clear that b1 = v1 is the best
response strategy for payer 1 in case 2 as well
Combining analysis of case 1 and 2, we have
u1 (v1 , b2 , . . . , bn ) ≥ u1 (b̂1 , b2 , . . . , bn ) ∀b̂1 ∈ S1 , ∀(b2 , . . . , bn ) ∈ S2 × . . . × Sn

Thus b1 = v1 is a weakly dominant strategy for bidder 1

Using similar argument, we can show that bi = vi is a
weakly dominant strategy for bidder i where i = 2, 3, . . . , n
Hence, v1 , . . . , vn is a weakly dominant strategy equilibrium

Sanjay Singh Dominant Strategy Equilibria

Definition (IESD)
The process of repeatedly reducing the game, as well as its
result, a game that can not be reduced any further since there
are no strictly dominated strategies is called iterated elimination
of strictly dominated strategy (IESD).

Except in cases where IESD result is a game with just one

strategy (option) for Alice, IESD is a method of excluding
strategy rather than telling what strategy (move) to choose

Sanjay Singh Dominant Strategy Equilibria

Example (Two Bars)

Each of two bars, say A and B charges its own price for a beer, either | 2, | 4,
or | 5. The cost of obtaining and serving the beer can be neglected. It is
expected that 6000 beers per month are drunk in a bar by tourists, who
chooses one of the two bars randomly, and 4000 beers per month are drunk
by natives who go to the bar with the lowest price, and split evenly in case
both bars offer the same price. What prices would the bars select?

If bar A charges |2 and bar B charges |4, then all natives will choose
bar A
Hence A will serve 4000 beers to natives and 3000 beers to tourists,
serving 7000 beers in total, making 7000X2=14000 rupees
Bar B will only serve 3000 beers to tourists, making 3000X4=12000
rupees
The payoff matrix, with values in thousands of rupees is
B
A
2 4 5
2 10,10 14,12 14,15
4 12,14 20,20 28,15
5 15,14 15,28 25,25

Sanjay Singh Dominant Strategy Equilibria

 B
A
2 4 5
2 10,10 14,12 14,15
4 12,14 20,20 28,15
5 15,14 15,28 25,25

For each bar, strategy ”4” strictly dominates strategy ”2”,

therefore we would eliminate both strategies ”2” to get the
reduced game
B
A
4 5
4 20,20 28,15
5 15,28 25,25
Now strategy ”4” strictly dominates strategy ”5”, we’ll
eliminate these strategy for both players as well and arrive
at a game with one option, ”4”, for each player and payoff
of | 20000 for each
Sanjay Singh Dominant Strategy Equilibria

Summary
A strongly dominated strategy for a player means that the
strategy when chosen by the player is strictly better than any
other strategy, regardless of the strategies chosen by other
players
A weakly dominant strategy for a player means that the strategy
when chosen by the player is at least as good as any other
strategy, regardless of the strategies chosen by other players.
Additionally, it is strictly better than each of the other strategies
of the player for at least one strategy profile chosen by the rest of
the players
A very weakly dominant strategy for a player means that the
strategy chosen by the player is at least as good as any other
strategy, regardless of the strategies chosen by other players
Dominant strategies may or may not exist
A strictly dominant strategy if exists, it will be unique
A player would be happy to play a dominant strategy, if one exists
Sanjay Singh Dominant Strategy Equilibria