Nash Equilibrium

Definition

Nash Equilibrium is a situation in game theory where each player's strategy is optimal given the strategies of all other players. It occurs when no player has an incentive to unilaterally change their strategy.

Analogy

Imagine you and your friend are playing a game of rock-paper-scissors. In Nash Equilibrium, both of you have chosen your strategies (rock, paper, or scissors) in such a way that neither of you can gain an advantage by switching to a different strategy. You've reached the perfect balance!

Related terms

Dominant Strategy: A dominant strategy is the best choice for a player regardless of what choices other players make.

Prisoner's Dilemma: The prisoner's dilemma is a classic example in game theory where two individuals acting in their own self-interest end up with suboptimal outcomes.

Payoff Matrix: A payoff matrix shows the possible outcomes and payoffs for each player in a game.