Well, for starters, I don't think that dots are any advantage at all in reacting to or picking up a target in a defensive setting. A few guys have done reasonable tests with this (multiple shooters and so on) and concluded the same thing. If you want to be efficient at defensive shooting, learn to shoot while looking at the target and not the sights. It's not that hard once you commit to it, and you'll learn a lot about things like grip and upper-body "stance" while you're at it.
Now, for competition? I think it comes down to three factors:
--Target size
--Distance
--Optic size
Smaller targets, further away, demand a smaller dot. If the optic itself is smaller, a smaller dot is better, because it occupies less of the viewing area.
I would also make a distinction between "precision" vs "good'nuff". In BE, my "target" is actually only a portion of the bull measuring ~.9" across. Now, I'm not actually trying to put the dot on that itty-bitty circle and somehow shoot when that happens, because that's a great recipe for never shooting a single 10.
What I'm actually doing is just squeezing the trigger, and the dot helps me aim. I'm not so much watching it as I am observing the behavior, and letting the shot happen. I shot six 10s on one SF just tonight, and I can tell you that I only had a perfect sight picture maybe once.
In steel, any hit on the plate is good'nuff. So you can get away with a bigger dot. However, I think if you made me shoot steel, I'd still probably use a 3-4 MOA size, because it's more a matter of personal preference than anything else. I even know guys that shoot BE with everything from a 2 MOA to an 8 MOA dot.