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.
INVESTOPEDIA EXPLAINS '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.

ZeroSum Game
A situation in which one person’s gain is equivalent to another’s ... 
Decision Theory
An interdisciplinary approach to determine how decisions are ... 
Pareto Efficiency
An economic state where resources are allocated in the most efficient ... 
Nash Equilibrium
A concept of game theory where the optimal outcome of a game ... 
Equilibrium
The state in which market supply and demand balance each other ... 
Game Theory
A model of optimality taking into consideration not only benefits ...

Why is Game Theory useful in business?
Game theory was once hailed as a revolutionary interdisciplinary phenomenon bringing together psychology, mathematics, philosophy ... Read Full Answer >> 
What is the relationship between research and development and innovation?
Although it's possible to achieve innovation without research and development and it's possible to conduct research and development ... Read Full Answer >> 
How is minimum transfer price calculated?
A company that transfers goods between multiple divisions needs to establish a transfer price so that each division can track ... Read Full Answer >> 
How does neoclassical economics relate to neoliberalism?
While it may be likely that many neoliberal thinkers endorse the use of (or even emphasize) neoclassical economics, the two ... Read Full Answer >> 
What are common concepts and techniques of managerial accounting?
The common concepts and techniques of managerial accounting are all the concepts and techniques that surround planning and ... Read Full Answer >> 
How is abatement cost accounted for on financial statements?
Abatement costs are accounted for on a company's financial statements through increases in either cost of goods sold or operational ... Read Full Answer >>

Options & Futures
Nobel Winners Are Economic Prizes
Before you try to profit from their theories, you should learn about the creators themselves. 
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. 
Fundamental Analysis
The Basics Of Game Theory
Break down and examine the potential consequences of economic/financial scenarios. 
Fundamental Analysis
Understanding the Profitability Index
The profitability index (PI) is a modification of the net present value method of assessing an investment’s attractiveness. 
Economics
What is Neoliberalism?
Neoliberalism is a littleused term to describe an economy where the government has few, if any, controls on economic factors. 
Fundamental Analysis
Explaining the Monte Carlo Simulation
Monte Carlo simulation is an analysis done by running a number of different variables through a model in order to determine the different outcomes. 
Economics
Understanding Limited Liability
Limited liability is a legal concept that protects equity owners from personal losses due to their ownership interest in the company. 
Economics
Calculating Income Elasticity of Demand
Income elasticity of demand is a measure of how consumer demand changes when income changes. 
Economics
Understanding Implicit Costs
An implicit cost is any cost associated with not taking a certain action. 
Fundamental Analysis
Explaining the Empirical Rule
The empirical rule provides a quick estimate of the spread of data in a normal statistical distribution.