The Hypothesis of Nash Equilibrium and Its Bayesian Justification
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The theory of games treats decision problems where the results of an agent’s action depend on the actions of others. It advances standards of rationality for an agent’s choice of an action, or strategy. The most widely accepted standard enjoins an agent to do his part in a Nash equilibrium, i.e., a set of strategies, one for each agent, such that each agent’s strategy is a best reply to the others. Nash equilibrium is intuitively appealing, but there are difficulties in specifying appropriate conditions for it and in showing that under those conditions the Nash strategies that constitute it are rational choices.
KeywordsNash Equilibrium Expected Utility Good Reply Correlate Equilibrium Strategic Reasoning
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