Question

1d. Explain the three criteria we use to evaluate solution concepts, & use them to compare Dominant Strategy Equilibrium with Nash Equilibrium?

Answer 1

Dominant Strategy Solution:

It's possible that a dominant strategy solution is also in Nash equilibrium, although the underlying principles of a dominant strategy render Nash analysis somewhat superfluous. In other words, the cost and benefit incentives don't change based on other actors.In the dominant strategy, each player's best strategy is unaffected by the actions of other players. This renders the critical assumption of the Nash equilibrium—that each actor knows the optimal strategy of the other players—possible but almost pointless.

Nash Equilibrium Solution

The Nash equilibrium is named after John Forbes Nash, describing a stable-state equilibrium in a multi-person situation where no participant gains by a change in his strategy as long as the other participants also remain unchanged.In other words, a Nash equilibrium takes place when each player remains in the same position as long as no other player would take a different action. Each player would be worse off and, therefore, chooses not to move.The most famous example of Nash equilibrium is the prisoner's dilemma. In the prisoner's dilemma, two criminals are captured and interrogated separately. Even though each would be best off by not cooperating with police, each expects the other criminal to confess and reach a plea deal. Thus, there is a conflict between group rationality and individual rationality, and each criminal is likely to rat out the other.This example has caused some confusion about the Nash equilibrium. The theory is not used exclusively for situations where there is a defecting party; the Nash equilibrium can exist where all members of a group cooperate or where none do. In fact, many games can have multiple Nash equilibria.