Economics Stack Exchange is a question and answer site for those who study, teach, research and apply economics and econometrics. It only takes a minute to sign up.
Sign up to join this community
I am new to game theory and I came across this line, " A strategy profile (s1, . . . , sn) in which every si is dominant for agent i (strictly, weakly, or very weakly) is a Nash equilibrium."
But why is that? And how would an equilibrium form in strictly dominant strategies? Do they both just yield the same best payoff?
Any help would be appreciated!
It will be useful to spell out the relevant definitions.
Let $A_i$ be the set of possible actions for player $i$, $A_{-i}$ be the set of possible joint actions of all players except for player $i$, $A$ be the set of possible joint actions of all the players. For $a=(a_i,a_{-i})\in A$, let $u_i(a)$ denote the payoff to player $i$ from action $a_i$, given that the other players play $a_{-i}$.
Definition 1: An action $a_i\in A_i$ is weakly dominant for player $i$ if for every $a_{-i}\in A_{-i}$, $u_i(a_i,a_{-i})\ge u_i(\overline{a_i},a_{-i})$ for every $\overline{a_i}\in A_i$, i.e. no matter what the other players do, action $a_i$ yields a payoff at least as high as any other action available to player $i$. [Strict dominance given by $>$ instead of $\ge$.]
Definition 2: An action $a_i\in A_i$ is a best response to action $a_{-i}\in A_{-i}$ if $u_i(a_i,a_{-i})\ge u_i(\overline{a_i},a_{-i})$ for every $\overline{a_i}\in A_i$, i.e. If I fix other players' actions to some particular joint action, then $a_i$ yields a payoff to player $i$ at least as high as any other action available to player $i$.
Claim 1: If an action $a_i\in A_i$ is strictly or weakly dominant, then it is a best response for any joint action $a_{-i}\in A_{-i}$. [This follows from Definitions 1 and 2 immediately.]
Definition 3: A joint action $a\in A$ is a Nash equilibrium if for each player $i$, action $a_i$ is a best response to $a_{-i}$.
Claim 2 (your question): A strategy profile (i.e. joint action) $s=(s_1,...,s_n)\in A$ in which each $s_i$ is a (strictly or weakly) dominant strategy is a Nash equilibrium.
Note that Claim 2 is a consequence of Claim 1.
