Strategy additions and equilibrium selection (Q2276897)

In certain games with multiple equilibria, if one of the players is given the option of burning an appropriately chosen sum of money before the game and the iterated elimination of dominated strategies is used to select strategies for play, then a unique equilibrium can be made to appear. This suggests that problems of multiple equilibria can sometimes be addressed by adding strategies to a game and then applying iterated admissibility to select a unique equilibrium in the expanded game. The usefulness of an equilibrium selection device depends upon the limits on its ability to select equilibria. The theorem in this paper states that given any pure strategy Nash equilibrium in a normal form game, then by adding at most one strategy to each player's strategy set and appropriately defining payoffs, one can make that equilibrium the unique outcome surviving the iterated elimination of dominated strategies. In addition, the iterative process requires at most two steps.