Difference between revisions of "Nash equilibrium"
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| − | The Nash equilibrium was developed by [[John Nash]] to describe situations when several people or companies have benefits that depend on the decisions of rival. The Nash equilibrium predicts the choices those people or companies will make to maximize their individual benefits. | + | The '''Nash equilibrium''' was developed by [[John Nash]] to describe situations when several people or companies have benefits that depend on the decisions of rival. The Nash equilibrium predicts the choices those people or companies will make to maximize their individual benefits. |
The Nash equilibrium is the set of decisions whereby no single individual can improve his benefit if everyone else's decision remains unchanged. That is an "equilibrium" because no one, acting alone, would have any reason to change it. | The Nash equilibrium is the set of decisions whereby no single individual can improve his benefit if everyone else's decision remains unchanged. That is an "equilibrium" because no one, acting alone, would have any reason to change it. | ||
Revision as of 05:38, April 15, 2007
The Nash equilibrium was developed by John Nash to describe situations when several people or companies have benefits that depend on the decisions of rival. The Nash equilibrium predicts the choices those people or companies will make to maximize their individual benefits.
The Nash equilibrium is the set of decisions whereby no single individual can improve his benefit if everyone else's decision remains unchanged. That is an "equilibrium" because no one, acting alone, would have any reason to change it.
In economics, the Nash equilibrium describes pricing decisions by an oligopoly. The set of selling prices will be such that no seller can benefit by changing his price while the other sellers keep their prices unchanged. If the cost structures are the same for each seller in an oligopoly, then the Nash equilibrium is where the price equals the marginal cost, or P=MC.
In the prisoner's dilemma, the Nash equilibrium is where both defendants confess to their crime.