Microeconomics · free preview
Nash Equilibrium
A Nash equilibrium is a pair of strategies each of which is the best response to the other, dominant strategies are the special easy case, and coordination games show why equilibria can be multiple and hard to choose.
1. Mutual best responses
Mutual best responses
2. Coordination and the choice problem
Coordination and the choice problem
3. Coordination failure and its price
Coordination failure and its price
4. From cells to life
From cells to life
5. Finding best responses
In the fare matrix, North earns 60 by holding if South holds, 90 by cutting, and earns 10 by holding if South cuts, 20 by cutting. What are North's best responses?
6. Multiple equilibria
Two firms choose between standards A and B. If both choose the same standard, each earns 50, except the firm whose home standard it is earns 60. If they choose different standards, each earns 10. How many Nash equilibria do you find, and what problem does the game pose?
7. The coordination premium
Two firms using the same standard each earn 50, while using different standards each earns 10. Compute the payoff gain per firm from coordinating successfully rather than failing to, and write the number.
8. The definition at work
What exactly is a Nash equilibrium in a game with two or more players?
9. The standards problem
Two firms choose between technical standards A and B, both preferring to share whichever standard the other uses. What game is this?
10. The price of missing each other
Two firms using the same technical standard each earn 40, while using different standards each earns 8. Compute the per-firm loss from failing to coordinate, and write the number.
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