Rationalizable Actions in a 2x2 Game

Dominance Rationalizable Actions References
GE2256: Game Theory Applications to

Business
Lecture 5
Department of Economics and Finance

City University of Hong Kong
Sem A, 2022-2023
(Strictly) Dominant Strategy
Table: Prisoner’s Dilemma

Quiet Fink
Quiet -1, -1 -3, 0
Fink 0, -3 -2, -2
Strictly Dominant Strategy

An action strictly dominates another action if it gives a strictly
higher payoff than the other action for every possible choice of
play of the other player(s).
“Fink” is row player’s strictly dominant strategy. “Fink” is column
player’s strictly dominant strategy as well.
Domination by a Mixed Strategy

It is perfectly possible for an action to be dominated by a
mixed strategy:

L R
U 2, 7 6, 0
M 3, 8 3, 8
D 5, 0 1, 8
The mixed strategy which puts 12 probability on U and 1
probability on D, that is, p 12 , 0, 21 q strictly dominates M.

2
If column plays L, row player’s expected payoff from the

mixed strategy is 21 p2q 21 p5q 3.5 ¡ 3, which is the payoff
from M.
If column plays R, row player’s expected payoff from the
mixed strategy is 21 p6q 21 p1q 3.5 ¡ 3, which is the payoff
from M.
Rationalizable Actions
We can use the concept of dominant strategies and

dominated strategies in order to identify strategies that will
not be played by rational players.
We will eliminate certain strategies of players using the
procedure of iterated elimination of strictly dominated
strategies (IEDS). We will use some examples to illustrate
this idea.
Consider the following game:
Note that Y strictly dominates X: regardless of what the

row player is doing, playing Y gives a strictly higher payoff
than playing X.
We have the following reduced game:
Column player will never choose X and this is common

knowledge so that row player knows this. So, eliminate X
from the possible play of column player.
Note now in the reduced game (after eliminating X),
observe that A is strictly dominated by B for the row player.
Play of A cannot be justified or rationalized.
Thus, we can eliminate the action A (row player will never

choose A):
In this reduced game, Z dominates Y for column player.

Y should be eliminated as well.
Thus, we can eliminate the action Y:
The process that we followed to eliminate step-by-step the

strictly dominated strategies is known as the ITERATED
ELIMINATION OF (STRICTLY) DOMINATED
STRATEGIES or IEDS.
In this example, the only strategies/actions that survive the
IEDS are B for row player and Z for column player. The
rationalizable action set is tBu for row player and tZ u for
column player.
In this example, IEDS produced a unique action for each

player. In other cases, it may produce a collection of
actions.
The actions that survive the iterated elimination of
strictly dominated strategies are known as
rationalizable actions.
Important Note: An action that is not rationalizable will
never be played at a Nash equilibrium. In other words, a
non-rationalizable action will not be part of a (pure or
mixed) Nash equilibrium.
Exercise I: Rationalizable Actions
Find the set of rationalizable actions in the following game:
A B
U 1, 3 4, 0
M 2, 2 2, 2
D 4, 2 1, 3
Answer:
First, note that there is no pure strategy that strictly
dominates the other for each player.
Also, for column player, A is a best-response to row player
playing U while B is a best-response to row player
choosing D.
For row player, U is a best-response to column player
playing B while D is a best-response to column player
choosing A. M is not a best-response for the play of any
pure strategy of the column player.
A closer look should give you an indication that for the row
player, M is dominated by a mixed strategy which places 21
probability on U and 12 probability on D.
You can check that this is indeed true:

If column player plays A, then M gives a payoff of 2
whereas the prescribed mixed strategy gives an expected
payoff of 12 p1q 12 p4q 2.5 ¡ 2.
If column player plays B, then M gives a payoff of 2
whereas the prescribed mixed strategy gives an expected
payoff of 12 p4q 12 p1q 2.5 ¡ 2.
Thus, we can eliminate the action M and note that the row
player will never play this action. You can come up with any
other mixed strategy (with probabilities different from 12 on
U and 21 on D) that strictly dominates M.
Alternatively, there is a general argument that you can use
in order to eliminate M. See next two slides.
Calculate the expected payoff from playing each pure

strategy for the row player against the belief that the
column player chooses A with probability q and B with
probability 1 q.
U : 1q 4p1 qq q 4 4q 4 3q
M : 2q 2p1 qq 2
D : 4q 1p1 qq 3q 1
Observe that playing U dominates playing M for the row

player if the expected payoff from U > expected payoff from
M, that is, 4 3q ¡ 2 ùñ q 23 .
Observe that playing D dominates playing M for the row
player if the expected payoff from D > expected payoff from
M, that is, 3q 1 ¡ 2 ùñ q ¡ 13 .
This means that the play of M cannot be
justified/rationalized for any belief that row player has
about the column player’s action choices. For any
q P r0, 1s, M is never a best response.
No more actions can be eliminated as for the column

player, A is a best response to U and B is a best response
to D. For the row player, U is the best response to B and D
is the best response to A.
The set of rationalizable actions are tU, Du for row player
and tA, Bu for column player.
Exercise II: Rationalizable Actions
A B
U 12, 0 0, 6
M 10, 2 4, 2
D 9, 3 6, 0

First, note that there is no pure strategy that strictly
dominates the other for each player.
Also, for column player, A is a best-response to row player
playing D while B is a best-response to row player
choosing U.
For row player, U is a best-response to column player
playing A while D is a best-response to column player
choosing B. M is not a best-response for the play of any
pure strategy of the column player.
However, M might still be a best-response to column player
choosing a mixed strategy. We need to write down the
expected payoffs from playing each pure strategy for the
row player against the belief that the column player
chooses A with probability q and B with probability 1 q.
Calculate the expected payoff from playing each pure

strategy for the row player against the belief that the
column player chooses A with probability q and B with
probability 1 q.
U : 12q 0p1 qq 12q
M : 10q 4p1 qq 6q 4
D : 9q 6p1 qq 3q 6
Observe that playing U dominates playing M for the row

player if the expected payoff from U > expected payoff from
M, that is, 12q ¡ 6q 4 ùñ q ¡ 23 .
Observe that playing D dominates playing M for the row
player if the expected payoff from D > expected payoff from
M, that is, 3q 6 ¡ 6q 4 ùñ q 32 .
However, when q 23 , the expected payoff from each
pure strategy U, M and D is the same and equals 8.
This means that play of M can be justified or
rationalized for the belief of the row player where he
believes that the column player mixes with probability
q 32 on A and probability q 13 on B.
None of the actions can be eliminated for the row player

and none of the actions can be eliminated for the column
player.
The set of rationalizable actions are tU, M, Du for row
player and tA, Bu for column player.
Exercise III: Rationalizable Actions

Consider row player. His best responses to column player’s

play are:
play U if column plays X.
play D if column plays Y.
play M if column plays Z.
This hints at no elimination of row player’s action at this
point. So, we need to consider column player now (see
next page).
Consider column player. His best responses to row player’s

play are:
play Y if column plays U.
play Z if column plays M.
play Z if column plays D.
This hints at a possible elimination of X for column player
at this point.
Indeed for the column player, a mixed strategy that puts 1

2
probability on Y and 21 probability on Z would strictly
dominate X:
If row plays U, playing X gives 1 and playing the prescribed
mixed strategy gives an expected payoff of
2 p4 q 2 p0q 2 ¡ 1.
1 1
If row plays M, playing X gives 1 and playing the prescribed

2 p0 q 2 p5q 2.5 ¡ 1.
1 1
If row plays D, playing X gives 3 and playing the prescribed

2 p4 q 2 p5q 4.5 ¡ 3.
1 1
So, eliminate X for column player.

Next, observe that D strictly dominates U for row player.

So, eliminate U next.
Now, observe that Z strictly dominates Y in this reduced

game. So, eliminate Y next.
Now, observe that M strictly dominates D in this reduced

game. So, eliminate D next.
So, only the action M is rationalizable for row player and

only Z is rationalizable for column player.
References
Although the lecture slide is self-contained, you might want to

refer to the following from the textbook (GAMES OF
STRATEGY by Dixit, Skeath, Reiley):
Subsection A (Applying the concept of rationalizability) of
section 3 (Rationalizability) of chapter 5

Rationalizable Actions in a 2x2 Game

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Dominance Rationalizable Actions References

GE2256: Game Theory Applications to

Department of Economics and Finance

(Strictly) Dominant Strategy

Table: Prisoner’s Dilemma

Strictly Dominant Strategy

Domination by a Mixed Strategy

The mixed strategy which puts 12 probability on U and 1

probability on D, that is, p 12 , 0, 21 q strictly dominates M.

If column plays L, row player’s expected payoff from the

We can use the concept of dominant strategies and

Consider the following game:

Note that Y strictly dominates X: regardless of what the

We have the following reduced game:

Column player will never choose X and this is common

Thus, we can eliminate the action A (row player will never

In this reduced game, Z dominates Y for column player.

The process that we followed to eliminate step-by-step the

In this example, IEDS produced a unique action for each

Exercise I: Rationalizable Actions

Find the set of rationalizable actions in the following game:

Exercise I: Rationalizable Actions

Exercise I: Rationalizable Actions

You can check that this is indeed true:

Exercise I: Rationalizable Actions

Calculate the expected payoff from playing each pure

Exercise I: Rationalizable Actions

Observe that playing U dominates playing M for the row

Exercise I: Rationalizable Actions

No more actions can be eliminated as for the column

Exercise II: Rationalizable Actions

Find the set of rationalizable actions in the following game:

Exercise II: Rationalizable Actions

Exercise II: Rationalizable Actions

Calculate the expected payoff from playing each pure

U : 12q 0p1 qq  12q

Exercise II: Rationalizable Actions

Observe that playing U dominates playing M for the row

Exercise II: Rationalizable Actions

None of the actions can be eliminated for the row player

Exercise III: Rationalizable Actions

Exercise III: Rationalizable Actions

Consider row player. His best responses to column player’s

Exercise III: Rationalizable Actions

Consider column player. His best responses to row player’s

Exercise III: Rationalizable Actions

Indeed for the column player, a mixed strategy that puts 1

If row plays M, playing X gives 1 and playing the prescribed

If row plays D, playing X gives 3 and playing the prescribed

So, eliminate X for column player.

Exercise III: Rationalizable Actions

Next, observe that D strictly dominates U for row player.

Exercise III: Rationalizable Actions

Now, observe that Z strictly dominates Y in this reduced

Exercise III: Rationalizable Actions

Now, observe that M strictly dominates D in this reduced

Exercise III: Rationalizable Actions

So, only the action M is rationalizable for row player and

Although the lecture slide is self-contained, you might want to

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U : 12q 0p1 qq 12q