A dominated strategy A. is one that is never used by a rational actor. B. exists when one firm is weaker than another. C. only occurs in a mixed strategy scenario. D. is a characteristic of games with multiple Nash equilibria.
The correct answer and explanation is:
The correct answer is A. is one that is never used by a rational actor.
A dominated strategy refers to a strategy that is always worse than another strategy, regardless of what the other players do in a game. A rational actor, who seeks to maximize their payoff, would never choose a dominated strategy because they would always prefer the dominating strategy. In essence, a dominated strategy is one that provides a lower payoff in all possible scenarios when compared to an alternative strategy.
In game theory, the concept of dominance helps players identify which strategies are irrational or suboptimal. If a player has two choices, and one choice always leads to a worse outcome than another, then the worse option is dominated. Rational players can eliminate dominated strategies from their decision-making process because they would never voluntarily choose them.
For example, in a two-player game, if Player A has two strategies, say A1 and A2, and no matter what Player B chooses, A1 always yields a higher payoff than A2, then A2 is a dominated strategy for Player A. Rational players would disregard it because there is no situation where A2 would be the best choice.
The existence of a dominated strategy can simplify the analysis of a game because players can focus on non-dominated strategies, which are more likely to be part of a Nash equilibrium. A Nash equilibrium occurs when no player has an incentive to unilaterally change their strategy. If all players avoid dominated strategies, they are more likely to end up in a Nash equilibrium.
In summary, a dominated strategy is one that is never rationally chosen by a player because it always results in a worse outcome than another available strategy. It does not necessarily relate to mixed strategies or multiple Nash equilibria.