The article below is obsolete. Improvements in the TripleA AI have made special handicapping unnecessary, as long as you play only 1 country. The Hard AI is a substantial improvement in AI, making handicapping less significant. The easiest way of handicapping is take 1 country, give your allies less competent AI's. The AI's in order of competence are:

  1. Do Nothing AI (only use for minor allies)
  2. Easy AI
  3. Land-only AI (don't use for a power that must fight by sea)
  4. Medium AI
  5. Hard AI

I this is insufficient you can try what it says below.

If you want to play 1 country, you will need to reduce your capabilities. Try the following.

  • Withdraw after the first round of combat. This mitigates the AI's inability to consider counterattacks when attacking. It also gives the game a more natural feel.
  • No amphibious invasions of enemy capitals (except for island capitals). The AI can't properly defend against these and withdrawal is impossible.
  • No more than 1 bomber can strategically bomb a factory each turn. In some scenarios, strategic bombing is too effective and the AI does not respond properly to the attacks,
  • Buy exactly 1 tech roll per turn (unless your income is 19 or less). This will increase variety.
  • Spend a fixed proportion (1/3) on a randomly chosen unit type. Landlocked powers like Russia, spend 1/5 on naval units.

If you are playing an entire alliance, you can use TripleA cheat options (starting with version 1.5). A 25% income bonus should make a reasonable challenge. Add 1 to the AI's defense will make it harder to exploit AI blunders. You should still not invade enemy capitals amphibiously (except islands) because of the AI's limitations.

The lead programmer for TripleA recommends  giving the AI a bonus of 1 on attack and 2 on defense (but this was before the Hard AI

You could also use a fixed amount as a cheat, especially if you are facing only 1 foe or you foes are roughly equal in size. An attack or defense bonus throws off the balance between the unit types.

Bidding can also be used, but the AI tends to use large amounts of IPC's poorly.

If you are willing to change the game's XML files you can be flexible. Change the run count for bids from 1 to 999, and the bid will be received each turn. Delete the bidplace segment so the AI can't do anything with the money except spend it for regular builds (otherwise it can pop up new units in any controlled territory).

Another useful technique is to divert 1/5 of your income to tech or a randomly-chosen unit type each turn.

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