DEFINITION of 'Trembling Hand Perfect Equilibrium'

In game theory, an equilibrium state that takes into consideration the possibility of off-the-equilibrium 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.

  1. Reinhard Selten

    An economist and mathematician who won the 1994 Nobel Memorial ...
  2. Nash Equilibrium

    A concept of game theory where the optimal outcome of a game ...
  3. General Equilibrium Theory

    General equilibrium theory studies supply and demand fundamentals ...
  4. Equilibrium Quantity

    Equilibrium quantity represents the amount of an item that is ...
  5. John R. Hicks

    A British economist who received the 1972 Nobel Memorial Prize ...
  6. Neoclassical Growth Theory

    The neoclassical growth theory is an economic concept where equilibrium ...
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