Self-test on dominant strategies, dominated strategies, and Nash equilibrium

                                    Left           Right
                Up                3,3             4,4
                Down              4,2              3,10
3_4 The Nash equilibrium is
A. Up, Left
B. Up, Right
C. Down, Left
D. Down, Right

B. CORRECT. Neither Row nor Column would deviate. Row's payoff would fall from 4 to 3, and Column's from 4 to 3 also from unilaterial deviation.

Note that another way to reason that this is a sensible equilibrium is, in this context, to use iterated dominance. Left is a dominated strategy for Column. Believing Left is out of the question, Row finds Up preferable to Down, yielding 4 instead of 3.

I prefer to use the Nash equilibrium reasoning because it always applies to games, whereas for games that do not have any dominated strategies, the iterated dominance approach is useless.

Return to Self Test 1.

Send comments to Prof. Rasmusen. Last updated: October 30, 1996