Rationalizability is a solution concept in game theory. It is the most permissive possible solution concept that still requires both players to be at least somewhat rational and know the other players are also somewhat rational, i.e. that they do not play dominated strategies. A strategy is rationalizable if there exists some possible set of beliefs both players could have about each other's actions, that would still result in the strategy being played.

Rationalizability is a broader concept than a Nash equilibrium. Both require players to respond optimally to some belief about their opponents' actions, but Nash equilibrium requires these beliefs to be correct, while rationalizability does not. Rationalizability was first defined, independently, by Bernheim (1984) and Pearce (1984).

Starting with a normal-form game, the rationalizable set of actions can be computed as follows:

In a game with finitely many actions, this process always terminates and leaves a non-empty set of actions for each player. These are the rationalizable actions.

The iterated elimination (or deletion, or removal) of dominated strategies (also denominated as IESDS, or IDSDS, or IRSDS) is one common technique for solving games that involves iteratively removing dominated strategies. In the first step, at most one dominated strategy is removed from the strategy space of each of the players since no rational player would ever play these strategies. This results in a new, smaller game. Some strategies—that were not dominated before—may be dominated in the smaller game. The first step is repeated, creating a new even smaller game, and so on. The process stops when no dominated strategy is found for any player. This process is valid since it is assumed that rationality among players is common knowledge, that is, each player knows that the rest of the players are rational, and each player knows that the rest of the players know that he knows that the rest of the players are rational, and so on ad infinitum (see Aumann, 1976).

There are two versions of this process. One version involves only eliminating strictly dominated strategies. If, after completing this process, there is only one strategy for each player remaining, that strategy set is the unique Nash equilibrium. Moreover, iterated elimination of strictly dominated strategies is path independent. That is, if at any point in the process there are multiple strictly dominated strategies, then it doesn't matter for the end result which strategies we remove first.

Strict Dominance Deletion Step-by-Step Example:

Another version involves eliminating both strictly and weakly dominated strategies. If, at the end of the process, there is a single strategy for each player, this strategy set is also a Nash equilibrium. However, unlike the first process, elimination of weakly dominated strategies may eliminate some Nash equilibria. As a result, the Nash equilibrium found by eliminating weakly dominated strategies may not be the only Nash equilibrium. (In some games, if we remove weakly dominated strategies in a different order, we may end up with a different Nash equilibrium.)