Question

In simultaneous-move games, players cannot observe the strategy of the other player when they select their own strategy, yet in a certain sense the Nash equilibrium solution concept requires the players to know the strategies of the other players. Explain why this is so, what it implies about the use of the Nash equilibrium concept as a theory about the behaviour of actual people in real-world strategic interactions and possible ways in which the conceptual difficulty can be resolved.

Answer 1

In simultaneous move games, players cannot observe the strategy of the each other when they choose their own strategy but both players have complete information about each other's strategies and that each player is rational and preferences over outcomes are based on the assumption of rationality.

Nash equilibrium profile is the outcome where both players choose their best response to whatever the other player does. It is a dominant strategy for each player. Players know the strategies and can predict the behavior of the opponent based on past experience which is also true in real life. Any decision related to an interactive game depends on the current actions and past behavior of the opponents. Also, player's cultural and personal background helps in making decisions in a simultaneous move game.