Nash Equilibrium

Definition of 'Nash Equilibrium'


A concept of game theory where the optimal outcome of a game is one where no player has an incentive to deviate from his or her chosen strategy after considering an opponent's choice. Overall, an individual can receive no incremental benefit from changing actions, assuming other players remain constant in their strategies. A game may have multiple Nash equilibria or none at all.

Investopedia explains 'Nash Equilibrium'


This concept is named after its inventor John Nash and is incorporated in multiple disciplines (ranging from behavioral ecology to economics). If you want to test for a Nash equilibrium, simply reveal each person's strategy to all players. The Nash equilibrium exists if no players change their strategy, despite knowing the actions of their opponents. For example, let's examine a game between Tom and Sam. In this simple game both players can choose: A) received $1, or B) lose $1
 


Nash Equilibrium
Logically, both players choose strategy A and receive a payoff of $1. If you revealed Sam's strategy to Tom and vice versa, you will see that no player deviates from the original choice. Knowing the other player's move means little, and doesn't change behavior. The outcome A,A represents a Nash equilibrium.



Related Video for 'Nash Equilibrium'

comments powered by Disqus
Hot Definitions
  1. Leased Bank Guarantee

    A bank guarantee that is leased to a third party for a specific fee. The issuing bank will conduct due diligence on the creditworthiness of the customer looking to secure a bank guarantee, then lease a guarantee to that customer for a set amount of money and over a set period of time, typically less than two years.
  2. Degree Of Financial Leverage - DFL

    A ratio that measures the sensitivity of a company’s earnings per share (EPS) to fluctuations in its operating income, as a result of changes in its capital structure. Degree of Financial Leverage (DFL) measures the percentage change in EPS for a unit change in earnings before interest and taxes (EBIT).
  3. Jeff Bezos

    Self-made billionaire Jeff Bezos is famous for founding online retail giant Amazon.com.
  4. Re-fracking

    Re-fracking is the practice of returning to older wells that had been fracked in the recent past to capitalize on newer, more effective extraction technology. Re-fracking can be effective on especially tight oil deposits – where the shale products low yields – to extend their productivity.
  5. TIMP (acronym)

    'TIMP' is an acronym that stands for 'Turkey, Indonesia, Mexico and Philippines.' Similar to BRIC (Brazil, Russia, India and China), the acronym was coined by and investor/economist to group fast-growing emerging market economies in similar states of economic development.
  6. Pension Risk Transfer

    When a defined benefit pension provider offloads some or all of the plan’s risk – e.g.: retirement payment liabilities to former employee beneficiaries. The plan sponsor can do this by offering vested plan participants a lump-sum payment to voluntarily leave the plan, or by negotiating with an insurance company to take on the responsibility for paying benefits.
Trading Center