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.
BREAKING DOWN '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
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.

ZeroSum Game
A situation in which one personโs gain is equivalent to anotherโs ... 
Reinhard Selten
An economist and mathematician who won the 1994 Nobel Memorial ... 
John F. Nash Jr.
An American mathematician who won the 1994 Nobel Memorial Prize ... 
John Harsanyi
An economist who won the Nobel Memorial Prize in 1994 along with ... 
Iterated Prisoner's Dilemma
A normal prisoner's dilemma played repeatedly by the same participants. ... 
Tit For Tat
A gametheory mechanism which is subject to a payoff matrix similar ...

Economics
Economics Basics
Learn economics principles such as the relationship of supply and demand, elasticity, utility, and more! 
Economics
The Nash Equilibrium
Nash Equilibrium is a key concept of game theory, which helps explain how people and groups approach complex decisions. Named after renowned mathematician John Nash, the idea of Nash Equilibrium ... 
Options & Futures
Explaining The World Through Macroeconomic Analysis
From unemployment and inflation to government policy, learn what macroeconomics measures and how it affects everyone. 
Fundamental Analysis
The Basics Of Game Theory
Break down and examine the potential consequences of economic/financial scenarios. 
Options & Futures
Financial Concepts
Diversification? Optimal portfolio theory? Read this tutorial and these and other financial concepts will be made clear. 
Fundamental Analysis
The 3 Best Investments When Bull Markets Slow Down
Find out why no bull market lasts forever, and why investors should shift their assets away from growth and toward dividends when stocks slow down. 
Economics
Industries That Thrive On Recession
Recessions are not equally hard on everyone. In fact, there are some industries that even flourish amid the adversity. 
Investing Basics
Economist Guide: 3 Lessons Adam Smith Teaches Us
Learn three critical lessons about economics from 18th century philosopher Adam Smith, considered by many to be the father of economics. 
Term
Three Ways to Profit Using Call Options
A call option gives an investor the right, but not the obligation, to buy a stock at a specific price, known as the strike price. 
Term
Understanding Rational Choice Theory
Rational choice theory assumes an individual will always make prudent and logical decisions that yield the most benefits.

What does the Nash equilibrium predict?
The Nash equilibrium is the most common and fundamental concept in the theory of games ("games" meaning strategic social ... Read Full Answer >> 
How is game theory related to the Nash equilibrium?
The Nash equilibrium is an important concept in game theory referring to a stable state in a game where no player can gain ... Read Full Answer >> 
What's the difference between microeconomics and macroeconomics?
Microeconomics is generally the study of individuals and business decisions, macroeconomics looks at higher up country and ... Read Full Answer >> 
Do plane tickets get cheaper closer to the date of departure?
The price of flights usually increases one month prior to the date of departure. Flights are usually cheapest between three ... Read Full Answer >> 
How do you make working capital adjustments in transfer pricing?
Transfer pricing refers to prices that a multinational company or group charges a second party operating in a different tax ... Read Full Answer >> 
Do interest rates increase during a recession?
Interest rates rarely increase during a recession. Actually, the opposite tends to happen; as the economy contracts, interest ... Read Full Answer >>