Nash Equilibrium

Reviewed by Bhavana | Updated on Aug 27, 2020

Introduction to Nash Equilibrium

Nash Equilibrium is a term within game theory where there is no motivation to deviate from their initial strategy when the optimal outcome of a game is one. More specifically, the Nash Equilibrium is a game theory concept where the optimal outcome of a game is one in which no player has an incentive to deviate from his chosen strategy after considering the choice of an opponent.

Overall, a person can get no incremental gain from changing behavior, as long as other players remain consistent in their strategies. A game may have many or none of the Nash Equilibria.

Importance of Nash Equilibrium

Nash Equilibrium is named after the American mathematician—John Nash—its inventor. It is regarded as one of the most significant concepts in game theory, which seeks to mathematically and logically evaluate the actions that a game's players will take to obtain the best results for themselves.

The reason Nash's equilibrium is known to be such an important principle in game theory is due to its implementation. The Nash equilibrium can be integrated into a vast array of subjects ranging from economics to social sciences.

Game theorists use the principle of Nash Equilibrium to examine the result of several decision-makers' strategic interaction. In other words, it renders a way of foreseeing what will happen if decisions are taken simultaneously by several people or several institutions, and if the outcome for each of them depends on the decisions of the others. The basic intuition behind Nash's theory is that if one analyzes certain decisions in isolation, one cannot predict the outcome of multiple decision-makers' choices. Alternatively, one must ask what each player would do, bearing in mind the other's decision making.