DEFINITION of 'Trembling Hand Perfect Equilibrium'
In game theory, an equilibrium state that takes into consideration the possibility of offtheequilibrium play by assuming that the players' trembling hands may choose unintended strategies, although this probability is small. Trembling hand perfect equilibrium is a refinement by German economist Reinhard Selten of the Nash equilibrium proposed by John Forbes Nash, Jr., who shared the 1994 Nobel Memorial Prize in Economic Sciences with Reinhard Selten and John Harsanyi, another game theorist.
BREAKING DOWN 'Trembling Hand Perfect Equilibrium'
In a card game, this would amount to a player mistakenly playing the wrong card through a blunder or error (a "tremble"). By acknowleding the possibility that the opponent may have a lapse in reason or judgement, the player chooses a trembling hand perfect equilibrium that takes into account this probablity and protects the player should the opponent make a mistake. The trembling hand perfect equilibrium concept finds application in several areas, including the theory of industrial organization and macroeconomic theory for economic policy.

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 ... 
Nash Equilibrium
A concept of game theory where the optimal outcome of a game ... 
General Equilibrium Theory
General equilibrium theory studies supply and demand fundamentals ... 
Economic Equilibrium
A condition or state in which economic forces are balanced. These ...

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
Game Theory: Beyond The Basics
Take your game theory knowledge to the next level by learning about simultaneous games and the Nash Equilibrium. 
Term
What Is Equilibrium?
Equilibrium is a state of balanced supply and demand. 
Term
What Is Economic Equilibrium?
Economic equilibrium occurs when market supply is equal to market demand. 
Fundamental Analysis
The Basics Of Game Theory
Break down and examine the potential consequences of economic/financial scenarios. 
Economics
Advanced Game Theory Strategies For DecisionMaking
The importance of game theory to modern analysis and decisionmaking can be gauged by the fact that since 1970, as many as 12 leading economists and scientists have been awarded the Nobel Prize ... 
Economics
What is Deadweight Loss?
Deadweight loss can be applied to any deficiency caused by an inefficient allocation of resources. 
Investing Basics
Can Games Make You A Better Investor?
As investing is a great example of an activity that draws on a wide range of mental and emotional skills, it is worth exploring how to improve this skill set. 
Economics
What's a Price Ceiling?
A price ceiling is the maximum amount a seller can charge for a product or service. 
Professionals
Effect of Taxes on Supply and Demand
Tax Effects. This section illustrates how taxes alter the supply and demand equilibrium creating deadweight.

What is the difference between a dominant strategy solution and a Nash equilibrium ...
Dive into game theory and the Nash equilibrium, and learn why the Nash equilibrium assumptions about information are less ... Read Answer >> 
What does the Nash equilibrium predict?
Learn more about the famous Nash equilibrium, which is the revolutionary concept in game theory about the economics of human ... Read Answer >> 
How is game theory related to the Nash equilibrium?
Learn how Nash's equilibrium is an important concept in game theory, and understand how it applies to the common prisoner's ... Read Answer >> 
What is general equilibrium theory in macroeconomics?
Achieving equilibrium of prices in a single or multimarket setting involves a bidding process that is informed precisely ... Read Answer >> 
Why are there no profits in a perfectly competitive market?
See why economic profits are theoretically impossible in a perfectly competitive market and why some economists use perfect ... Read Answer >> 
Why is Game Theory useful in business?
Game theory was once hailed as a revolutionary interdisciplinary phenomenon bringing together psychology, mathematics, philosophy ... Read Answer >>