Question

Discuss Nash equilibrium and provide one example.

Answer 1

Nash equilibrium is a concept within game theory where the optimal outcome of a game is where there is no incentive to deviate from their initial strategy. Overall, an individual can receive no incremental benefit from changing actions, assuming other players remain constant in their strategies.

Real-world example:

Imagine a game between Tom and Sam. In this simple game, both players can choose strategy A, to receive $1, or strategy B, to lose $1. Logically, both players choose strategy A and receive a payoff of $1. Logically both the players choose strategy A and receive a payoff of $1. If one knew the strategy of the other then we will see that no player deviates from the original choice. The outcome A represents a Nash equilibrium.

Kindly upvote :)