Game Theory Nash Equilibrium

Posted in Finance, Accounting and Economics Terms, Total Reads: 1644

Definition: Game Theory Nash Equilibrium

Nash Equilibrium is the situation in a game in which a player cannot affect the result of the game for himself/herself by changing his/her strategies if the other players do not change their strategies. The strategies and payoffs in such a case are referred to be in Nash Equilibrium.

For example, consider a game with the following payoffs, where the values in the brackets indicate ( payoff for B, payoff for A) for that corresponding strategy.











In this game, if player B plays strategy B1, then it will be profitable for player A to play strategy A1. In case, B plays strategy B2, it would be still be profitable for A to play strategy A1. Similarly for player B it will be profitable to play strategy B1 always. Thus even if the strategies of A and B are revealed to each other, the knowledge would not let them to change their decision, and the final decision made would be (A1, B1). This game is said to be in Nash equilibrium.


Looking for Similar Definitions & Concepts, Search Business Concepts