DEFINITION of 'Trembling Hand Perfect Equilibrium'

In game theory, trembling hand perfect equilibrium is a 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 acknowledging the possibility that the opponent may have a lapse in reason or judgment, the player chooses a trembling hand perfect equilibrium that takes into account this probability 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.

RELATED TERMS
  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. Equilibrium

    Equilibrium state in which market supply and demand balance each ...
  4. John F. Nash Jr.

    John F. Nash, Jr., was an American mathematician who won the ...
  5. Radner Equilibrium

    The Radner Equilibrium is a theory regarding economic decision ...
  6. Neoclassical Growth Theory

    The neoclassical growth theory is an economic concept where equilibrium ...
Related Articles
  1. Investing

    Game Theory: Beyond the Basics

    Take your game theory knowledge to the next level by learning about the Nash Equilibrium.
  2. Insights

    Advanced Game Theory Strategies for Decision-Making

    Game theory can be used in a number of fields, including business, finance, economics, political science and psychology.
  3. Investing

    Seven Controversial Investing Theories

    Find out information about seven controversial investing theories that attempt to explain and influence the market as well as the actions of investors.
  4. Insights

    Fed's Fischer: Aging Population Suppressing Rates

    Federal Reserve Vice Chairman Stanley Fischer said the aging population and slow investment is keeping rates suppressed.
  5. Tech

    How To Game The Video Game Industry

    Investopedia explores the business, current developments, future trends of video games industry and how the overall industry makes money.
  6. Insights

    Perfect Competition

    Perfect competition is an economic idea that does not exist in the real world but can be used as a standard to measure the efficiency and effectiveness of real world markets.
  7. Tech

    How The Video Game Industry Is Changing

    Video game creation has become increasingly complex, and the cost of creating a game to run on one of the major consoles has risen with this greater complexity.
  8. Tech

    You Love Video Games, But Do You Know How The Industry Works?

    Traditionally, the video game industry was limited to consoles, such as Microsoft’s (MSFT) Xbox and Sony’s (SNE) PlayStation, but it now includes PC games, mobile games and, in the near future, ...
  9. Investing

    Modern Portfolio Theory Vs. Behavioral Finance

    Or: How financial markets would work in an ideal world vs. how they work in the real world.
RELATED FAQS
  1. Why is game theory useful in business?

    The concepts of game theory became a revolutionary interdisciplinary phenomenon, but they are still relevant for business ... Read Answer >>
  2. How Does the Law of Supply and Demand Affect Prices?

    Learn how the law of supply and demand affects prices, as when one outweighs the other, prices can rise or fall in response. Read Answer >>
  3. How does a monopoly contribute to market failure?

    Read a simple overview of the theory of market monopoly, where it originated and some contemporary challenges to the classical ... Read Answer >>
  4. Are perfect competition models in economics useful?

    Take a look at some of the arguments made by the proponents and critics of the theory of perfect competition in contemporary ... Read Answer >>
Hot Definitions
  1. Financial Risk

    Financial risk is the possibility that shareholders will lose money when investing in a company if its cash flow fails to ...
  2. Enterprise Value (EV)

    Enterprise Value (EV) is a measure of a company's total value, often used as a more comprehensive alternative to equity market ...
  3. Relative Strength Index - RSI

    Relative Strength Indicator (RSI) is a technical momentum indicator that compares the magnitude of recent gains to recent ...
  4. Dividend

    A dividend is a distribution of a portion of a company's earnings, decided by the board of directors, to a class of its shareholders.
  5. Inventory Turnover

    Inventory turnover is a ratio showing how many times a company has sold and replaces inventory over a period.
  6. Watchlist

    A watchlist is list of securities being monitored for potential trading or investing opportunities.
Trading Center