Define the term Nash equilibrium. In general, what can be claimed about the existence, uniqueness, and Pareto optimality of Nash equilibria? Support your answers with appropriate examples.
What will be an ideal response?
A Nash equilibrium is an outcome from which no player wants to deviate, taking the opponent's strategy as given. When only pure strategies are allowed, a Nash equilibrium may not exist as in the Copycat Game. (However, it can be proved under very general circumstances that a Nash equilibrium will exist when mixed strategies are allowed.) When a Nash equilibrium exists, it may not be unique; for instance, the Battle of the Sexes game has two Nash equilibria. Finally, a Nash equilibrium may or may not be Pareto optimal. For example, the Nash equilibria in the Battle of the Sexes game are both Pareto optimal, but the Nash equilibrium in the Prisoners' Dilemma game is not Pareto optimal.
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The figure shows the U.S. market for flip?flops. With international trade, the United States imports ________ flip?flops.
Fill in the blank(s) with the appropriate word(s).
An economic model is
A) a generalization that summarizes all the normative assumptions we make about a particular issue. B) a description of some aspect of the economic world that includes only those features of the world that are needed for the purpose at hand. C) a statement that describes how the world should be. D) a collection of facts that describe the real world.
Amy's opportunity cost of going to the movies is
A) the price of the ticket. B) zero, if she has a free pass to the movie. C) the price of the ticket plus the value to Amy of what she would have chosen to do with her time had she not chosen to go to the movies. D) both b and c
Average fixed cost
A. decreases steadily as output increases. B. increases steadily as output increases. C. exhibits diminishing returns. D. is a horizontal line.