I was thinking If I can show rewarded ad videos in my game. Is that allowed?

Well, its not illegal. Like, the cops wont bust through your door (unless you live somewhere where that  is illegal 0_0)

but no, its your game. Do whatever the #### you want.

As long as its not excessive and your game does not cost a thin dime (I'm looking at you EA) I say its okay

But don't expect people to be happy because everyone hates Ads (well unless you have nothing else to watch)

I would advise against it. There a few things more annoying than having your gameplay experience constantly interrupted. Though I think I speak for a lot or players when I say I would rather just purchase a game outright rather than being disturbed by adds. It's intrusive,  it ruins immersion, distracts train of thought, And has a high probability of irritating it's audience to a point that they develop a negative association with the adds and the dev.