What are the differences between Nash Equilibrium and Dominant Strategy?

What are the differences between Nash Equilibrium and Dominant Strategy?

Nash Equilibrium occurs when players choose strategies that are best for them, given the strategies of others. A Dominant Strategy is one that is the best choice for a player, regardless of what others do.

Can you give an example of each?

Sure! In a Nash Equilibrium, two firms might settle on a price that maximizes their profits given the price of the other. A Dominant Strategy example is when a player always chooses to cooperate in a prisoner's dilemma, as it yields the best outcome regardless of the other player's choice.

Are there situations where a Dominant Strategy doesn't exist?

Yes, there are many games where no Dominant Strategy exists. In such cases, players must consider the strategies of others to find a Nash Equilibrium.

How do these concepts apply in real-world scenarios?

These concepts are widely used in economics, politics, and social sciences to analyze competitive situations, like market competition or negotiations.