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In game theory, the Nash equilibrium, named after the mathematician John Forbes Nash Jr., is the most common way to define the solution of a non-cooperative game involving two or more players. In a Nash equilibrium, each player is assumed to know the equilibrium strategies of the other players, and no one has anything to gain by changing only one's own strategy. The principle of Nash equilibrium dates back to the time of Cournot, who in 1838 applied it to competing firms choosing outputs.
In game theory, the centipede game, first introduced by Robert Rosenthal in 1981, is an extensive form game in which two players take turns choosing either to take a slightly larger share of an increasing pot, or to pass the pot to the other player. The payoffs are arranged so that if one passes the pot to one's opponent and the opponent takes the pot on the next round, one receives slightly less than if one had taken the pot on this round, but after an additional switch the potential payoff will be higher. Therefore, although at each round a player has an incentive to take the pot, it would be better for them to wait. Although the traditional centipede game had a limit of 100 rounds, any game with this structure but a different number of rounds is called a centipede game.
In game theory, a player's strategy is any of the options which they choose in a setting where the outcome depends not only on their own actions but on the actions of others. The discipline mainly concerns the action of a player in a game affecting the behavior or actions of other players. Some examples of "games" include chess, bridge, poker, monopoly, diplomacy or battleship. A player's strategy will determine the action which the player will take at any stage of the game. In studying game theory, economists enlist a more rational lens in analyzing decisions rather than the psychological or sociological perspectives taken when analyzing relationships between decisions of two or more parties in different disciplines.
In game theory, a non-cooperative game is a game with competition between individual players, as opposed to cooperative games, and in which alliances can only operate if self-enforcing. However, 'cooperative' and 'non-cooperative' are only technical terms to describe the theory used to model a game, so it is possible to use cooperative game theory to model competition and using non-cooperative game theory to model cooperation.
In game theory, a solution concept is a formal rule for predicting how a game will be played. These predictions are called "solutions", and describe which strategies will be adopted by players and, therefore, the result of the game. The most commonly used solution concepts are equilibrium concepts, most famously Nash equilibrium.
Backward induction is the process of reasoning backwards in time, from the end of a problem or situation, to determine a sequence of optimal actions. It proceeds by examining the last point at which a decision is to be made and then identifying what action would be most optimal at that moment. Using this information, one can then determine what to do at the second-to-last time of decision. This process continues backwards until one has determined the best action for every possible situation at every point in time. Backward induction was first used in 1875 by Arthur Cayley, who uncovered the method while trying to solve the infamous Secretary problem.
In game theory, trembling hand perfect equilibrium is a refinement of Nash equilibrium due to Reinhard Selten. A trembling hand perfect equilibrium is an equilibrium that takes the possibility of off-the-equilibrium play into account by assuming that the players, through a "slip of the hand" or tremble, may choose unintended strategies, albeit with negligible probability.
In game theory, a repeated game is an extensive form game that consists of a number of repetitions of some base game. The stage game is usually one of the well-studied 2-person games. Repeated games capture the idea that a player will have to take into account the impact of his or her current action on the future actions of other players; this impact is sometimes called his or her reputation. Single stage game or single shot game are names for non-repeated games.
Sequential equilibrium is a refinement of Nash Equilibrium for extensive form games due to David M. Kreps and Robert Wilson. A sequential equilibrium specifies not only a strategy for each of the players but also a belief for each of the players. A belief gives, for each information set of the game belonging to the player, a probability distribution on the nodes in the information set. A profile of strategies and beliefs is called an assessment for the game. Informally speaking, an assessment is a perfect Bayesian equilibrium if its strategies are sensible given its beliefs and its beliefs are confirmed on the outcome path given by its strategies. The definition of sequential equilibrium further requires that there be arbitrarily small perturbations of beliefs and associated strategies with the same property.
In game theory, a Manipulated Nash equilibrium or MAPNASH is a refinement of subgame perfect equilibrium used in dynamic games of imperfect information. Informally, a strategy set is a MAPNASH of a game if it would be a subgame perfect equilibrium of the game if the game had perfect information. MAPNASH were first suggested by Amershi, Sadanand, and Sadanand (1988) and has been discussed in several papers since. It is a solution concept based on how players think about other players' thought processes.
In game theory, a subgame perfect equilibrium is a refinement of a Nash equilibrium used in dynamic games. A strategy profile is a subgame perfect equilibrium if it represents a Nash equilibrium of every subgame of the original game. Informally, this means that at any point in the game, the players' behavior from that point onward should represent a Nash equilibrium of the continuation game, no matter what happened before. Every finite extensive game with perfect recall has a subgame perfect equilibrium. Perfect recall is a term introduced by Harold W. Kuhn in 1953 and "equivalent to the assertion that each player is allowed by the rules of the game to remember everything he knew at previous moves and all of his choices at those moves".
Quantal response equilibrium (QRE) is a solution concept in game theory. First introduced by Richard McKelvey and Thomas Palfrey, it provides an equilibrium notion with bounded rationality. QRE is not an equilibrium refinement, and it can give significantly different results from Nash equilibrium. QRE is only defined for games with discrete strategies, although there are continuous-strategy analogues.
Proper equilibrium is a refinement of Nash Equilibrium due to Roger B. Myerson. Proper equilibrium further refines Reinhard Selten's notion of a trembling hand perfect equilibrium by assuming that more costly trembles are made with significantly smaller probability than less costly ones.
In game theory, an epsilon-equilibrium, or near-Nash equilibrium, is a strategy profile that approximately satisfies the condition of Nash equilibrium. In a Nash equilibrium, no player has an incentive to change his behavior. In an approximate Nash equilibrium, this requirement is weakened to allow the possibility that a player may have a small incentive to do something different. This may still be considered an adequate solution concept, assuming for example status quo bias. This solution concept may be preferred to Nash equilibrium due to being easier to compute, or alternatively due to the possibility that in games of more than 2 players, the probabilities involved in an exact Nash equilibrium need not be rational numbers.
A non-credible threat is a term used in game theory and economics to describe a threat in a sequential game that a rational player would not actually carry out, because it would not be in his best interest to do so.
A Markov perfect equilibrium is an equilibrium concept in game theory. It has been used in analyses of industrial organization, macroeconomics, and political economy. It is a refinement of the concept of subgame perfect equilibrium to extensive form games for which a pay-off relevant state space can be identified. The term appeared in publications starting about 1988 in the work of economists Jean Tirole and Eric Maskin.
Jean-François Mertens was a Belgian game theorist and mathematical economist.
Mertens stability is a solution concept used to predict the outcome of a non-cooperative game. A tentative definition of stability was proposed by Elon Kohlberg and Jean-François Mertens for games with finite numbers of players and strategies. Later, Mertens proposed a stronger definition that was elaborated further by Srihari Govindan and Mertens. This solution concept is now called Mertens stability, or just stability.
M equilibrium is a set valued solution concept in game theory that relaxes the rational choice assumptions of perfect maximization and perfect beliefs. The concept can be applied to any normal-form game with finite and discrete strategies. M equilibrium was first introduced by Jacob K. Goeree and Philippos Louis.
References
- ↑ Eric van Damme. "A relationship between perfect equilibria in extensive form games and proper equilibria in normal form games." International Journal of Game Theory 13:1--13, 1984.
- ↑ Jean-François Mertens. "Two examples of strategic equilibrium." Games and Economic Behavior, 8:378--388, 1995.