Actions bear externalities, which may generate strategic substitutability (e.g., entering a new competitive market) or strategic complementarity (e.g., speculating against a currency with a fixed exchange rate). Each agent has to choose his strategy and guess what others do at the same time.

Under some conditions, some strategies are strictly dominated and thus ruled out. The iterated elimination of dominated strategies may converge to a unique strategy that defines a strongly rational expectations equilibrium (SREE). When the process is applied under strategic substitutabilities, it strengthens the Nash equilibrium. When there are strategic complementarities and multiple Nash equilibria under perfect information, the game is extended to include imperfect information, and there may be a unique equilibrium in the extended game. Applications to speculative attacks against a fixed exchange rate are discussed.