Topic 5

Question 1

What is Nash equilibrium ?

Answer 1

Requires that every player is choosing a best response for all other players strategies

Question 2

Nah equilibrium form

Answer 2

Ui(Si,S-i) >/= Ui(Si,S-i) for all Si and for all players i

Question 3

Two important underlying assumptions of Nash Equilibrium

Answer 3

1. Players are playing their best response against a conjecture
2. Conjectures must be correct

Question 4

Properties of Nash equilibrium

Answer 4

1. Stability

2. Self-fulfilment agreement

Question 5

Criticisms of Nash equilibrium

Answer 5

• games can have more than one Nash Equilibrium, which undermines its predictability power
• concept of Nash Equilbrium assumes that players make correct conjectures of others strategies, which may not away she the case
• players may not play a Nash equilibrium if they prefer to use strategy that somehow are safer than their Nash strategy

Question 6

How to calculate Nash equilibrium

Answer 6

When players have a continuum of strategies, Nash Equilibrium is the point where all players best responses interact