Lecture 5 - Nash equilibrium: bad fashion and bank runs

author: Benjamin Polak, Department of Economics, Yale University
recorded by: Yale University
published: Nov. 15, 2010,   recorded: September 2007,   views: 4404
released under terms of: Creative Commons Attribution No Derivatives (CC-BY-ND)

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We first define formally the new concept from last time: Nash equilibrium. Then we discuss why we might be interested in Nash equilibrium and how we might find Nash equilibrium in various games. As an example, we play a class investment game to illustrate that there can be many equilibria in social settings, and that societies can fail to coordinate at all or may coordinate on a bad equilibrium. We argue that coordination problems are common in the real world. Finally, we discuss why in such coordination problems--unlike in prisoners' dilemmas--simply communicating may be a remedy.

Reading assignment:

Strategies and Games: Theory And Practice. (Dutta): Chapter 5

Strategy: An Introduction to Game Theory. (Watson): Chapters 6-9

Thinking Strategically. (Dixit and Nalebuff): Chapter 3, Sections 4-6


Problem Set 2 [PDF]
Blackboard Notes Lecture 5[PDF]

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