Monday, January 22nd 2018

Nash Equilibrium


Nash Equilibrium Meaning:
A situation where all individuals participating in a game are using the best strategy possible taking into account the strategies of the other participants. Put another way, a Nash equilibrium exists when, even with perfect knowledge of the strategies employed by the other participants, no one participant would choose to unilaterally change their strategy.

Nash Equilibrium Example:
Company A and Company B have both invested time and money in developing very similar products, but using incompatible technologies. If one company would switch to using the same technology as the other, then sales across the board would increase by a lot and both companies would benefit. However, the cost of switching technologies is significant, and would cancel the gains made from increased sales by the company making the switch. This is therefore a Nash equilibrium, as neither company could be expected to change their current strategy.
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