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ECON 159 - Lecture 5 - Nash Equilibrium: Bad Fashion and Bank Runs

econ 159: Game Theory

Lecture 5 - Nash Equilibrium: Bad Fashion and Bank Runs

Overview

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.